SEC’s crypto warning ‘not good for America’
The CEO of Coinbase Global ( COIN ) said Thursday that a warning his company received from the Securities and Exchange Commission is “not constructive” and “not good for America,” an escalation in the sparring between the largest U.S. crypto exchange and a powerful Washington regulator.
Brian Armstrong’s video message released Thursday was part of a larger public response by Coinbase to receiving a Wells notice last month. That notice stated that SEC staff had made a “preliminary decision” to recommend an enforcement action for violations of federal securities laws.
On Thursday, Coinbase also released a letter it sent to the SEC in response to the Wells notice. SEC staff, Coinbase said in the letter, “argue that Coinbase has been operating illegally since at least 2018,” but the staff’s legal theories are “flawed and unproven.”
It also says that an SEC enforcement action “would pose major programmatic risks to the commission” and “would fail due to Coinbase’s failure to list, clear or influence trading in securities.”
Coinbase shares were flat on Thursday. They are up more than 53% since the start of January, but are still down 82% since their initial public offering in April 2021.
The sparring between Coinbase and the SEC is part of a larger effort in Washington to rein in the cryptocurrency market.
Chairman Gary Gensler has called for crypto exchanges to be registered with the agency. Since the beginning of January, the SEC has also issued 14 enforcement actions against crypto firms and individuals.
Other exchanges have also sided with the SEC. They include Kraken, the nation’s second-largest crypto exchange, which reached a $30 million settlement with the SEC after being accused of offering to sell unregistered securities through its crypto-staking program.
Coinbase also has a stake program with terms that differ from the Kraken program, and it has told Yahoo Finance that it will fight any action against the service. SEC staff, it said in its letter to the agency, “argue that Coinbase’s betting services are investment contracts.”
Another exchange, Bittrex, said it would wind down its US operations at the end of March two weeks before the SEC published an enforcement action against the business for failing to register as a national securities exchange.
Armstrong said in his video Thursday that he was prepared to fight the SEC in court. His general counsel, who also appeared in the video, said that the company was also willing to appear at the office of the SEC at any time to find a viable future for the crypto industry in the United States.
In the company’s written response to the agency, Coinbase said the threat of SEC litigation “appears to pressure” the company to accept the agency’s view that all digital assets on the Coinbase platform are securities. That, it said, would mean an overhaul of the business model.
“None of these goals are supported by law or within the limits of the commission’s authority,” Coinbase said.
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