Professor warns SEC that its move against Coinbase is a ‘serious mistake’

A former adviser to the United States The Security and Exchange Commission (SEC) has warned that the agency will be making a “serious mistake” if it continues with an investigation of Coin base and other major crypto exchanges.

As reported, the SEC is reportedly set to move forward with an investigation into Coinbase over the listing of cryptoassets that it claims it classifies as unregistered securities.

And the exchange appears to have an ally in JW Verret, an associate professor of law who specializes in securities and finance at Antonin Scalia Law School.

In an opinion piece for the Wall Street Journal, Verret, who recently served on an advisory committee to the SEC, wrote that the commission would essentially be shooting itself in the foot if it went ahead with what it reportedly wants to do.

Verret wrote:

“The SEC’s position – that most tokens are securities and must be registered or face enforcement – ​​is obtuse. It is also an approach that works to the advantage of the scammers and hucksters who have abused the crypto space.”

He argued that innovation required a “rethinking of federal securities law”—law that has been in place since the 1930s. The professor added that the “facets” of crypto that “would shock the authors of the Securities Act of 1933” – making the legislation ill-suited to the challenges of the digital age.

He justified his stance by explaining that even if crypto developers “wanted to register their projects with the SEC, as traditional public companies are required to do, they could not.”

Verret pointed out that crypto projects generally do not have a board, CEO or CFO who can “file the necessary paperwork with the commission.” Nor, he added, “do they have proxy voting of shares by mail, which the commission still requires companies to provide to shareholders.”

And Verret added that the SEC “was 10 years late to the game in filing financial statements electronically” and was “similarly behind the curve in allowing CEOs to share corporate information over social media.” “It shouldn’t,” he warned, “make the same mistake with crypto.”

The professor urged the SEC to “build a regulatory regime tailored to the needs of crypto investors,” and heed the advice of SEC Commissioner Hester Peirce — known in the crypto space as “Crypto Mom.”

Following Peirce’s recommendations, he insisted it would make all parties “better able to separate the legitimate crypto projects from the fraud.”

Verret believed that “defendants in SEC actions can now use the nebulous nature of crypto-tokens to their advantage.”

But he warned:

“When cases are brought against legitimate businesses, like Coinbase, it’s a good thing. When it’s brought against fake projects that steal crypto, it’s not. The malleable nature of crypto-tokens will confuse [the] cookie-cutter application of the regulated security definition.”

Coinbase Chief Legal Officer Paul Grewal has previously hit back at the agency, stating that it does not list securities on the platform. Grewal also claimed that the process the exchange uses to determine whether a coin can be classified as a security had been reviewed by the SEC.
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– Right side of crypto regulation: Institutions must avoid Thucydides’ trap
– Former SEC’s Clayton and Coinbase’s Calvert on Crypto Regulation