Coinbase CEO Brian Armstrong warned the Securities and Exchange Commission that a possible enforcement action against his exchange is “not in America's interest,” and that the company is prepared to defend itself in court.
The SEC recently gave Coinbase official notice that the San Francisco-based company is under investigation for its Earn product, wallet service and exchange activity. The commission issued a Wells Notice to the embattled exchange, a document which can precede an enforcement action.
“A Wells Notice at this stage, when there is not a clear rulebook, is not constructive and it's not good for America,” Armstrong said in a new video alongside Chief Legal Officer Paul Grewal. “We are prepared to defend that position in court. But it doesn't have to come to that. We welcome a true dialogue about a workable path forward for our industry.”
Coinbase’s lawyers were more blunt in a formal, 73-page response to the SEC investigation that was released on Thursday afternoon.
“The commission’s case against Coinbase will fail as a matter of fact and law,” the Sullivan & Cromwell lawyers representing Coinbase wrote in the filing.
The video is the latest salvo between Coinbase and the SEC, with the former seeking crypto-specific regulation and the latter saying regulation already exists in the form of securities laws and that the industry needs to get into compliance.
As local regulators take a closer look at crypto, some companies have eyed expansion outside the U.S. Coinbase said last week it had obtained a monetary license in Bermuda and has plans to launch an offshore derivatives exchange.
‘Coinbase does not list securities’
Coinbase is the largest crypto exchange in the U.S. and has a nearly $13 billion market cap.
Grewal said in the video that the Wells Notice means SEC staff have “reached a preliminary determination that aspects of our company's core business violate securities laws.”
“I want to be very direct with you: Coinbase does not list securities,” Grewal said. “We use a robust process based on SEC guidance to make sure that we don't list securities.”
Coinbase would like to list securities in the future, but Grewal said it cannot because the SEC has not given crypto companies a way to register to do so. He called the Wells Notice targeting the exchange “broad yet fundamentally vague.”
“We still do not know exactly what it is that we do that is of concern to the SEC,” Grewal said.
Coinbase is already engaged in a separate legal battle with the SEC. The company, which requested the SEC issue a digital asset rule last year, is now suing the commission for an answer.
Gensler: Crypto’s problem is compliance, not clarity
Earlier in the day on Thursday, SEC Chair Gary Gensler posted a video to Twitter laying out his view that crypto markets suffer from a regulatory compliance problem, not a clarity issue. The regulatory boss did not name a specific company, but appeared to nod to recent enforcement action against Bittrex.
“If you're a securities exchange, clearinghouse, broker, or dealer, you must come into compliance, register with us, and deal with conflicts of interest and disclose important information,” Gensler said in the video.
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