SEC lawsuits against Coinbase and Binance could result in massive payday for lawyers

Quick Take

  • Legal costs for Binance and Coinbase in their battles with the SEC could top $100 million, according to a former lawyer at the agency.

The U.S. Securities and Exchange Commission's move to file suit against crypto exchanges Binance and Coinbase this week sent shockwaves across the industry and caused increased concern about the competitiveness of the country's digital asset ecosystem. It's good news for the lawyers set for a massive payday, though. 

"If legal fees for both exceed $100 million, I would not be surprised," Moses Singer partner Howard Fischer told The Block in an interview. Fischer, a former senior trial counsel at the SEC, led the regulator's litigation into the London Whale scandal at JPMorgan Chase during his 9-year tenure at the agency.

While Binance and Coinbase could prevail in the suits, U.S. lawmakers could also step in, with a draft bill from senior House Republicans currently looking to provide a path for a digital token to go from being treated as a security to a commodity. If the exchanges lose the lawsuits and congress fails to act, however, Fischer said that could shut down "crypto in the U.S. as it exists today."

Firms seems to be preparing for the latter outcome by expanding their footprint outside of the U.S. Coinbase, for its part, has established an offshore post in Bermuda to trade crypto-tied derivatives, while stablecoin issuer Circle on Tuesday announced it received a digital token license in Singapore. 

Crypto market structure 

As for the SEC's complaints themselves, Fischer said that market participants are largely overlooking the extent to which they overlap, focusing too much on the allegation that both Binance and Coinbase traded unregistered securities. It is equally significant that the agency calls out the market structure that underpins their venues, as crypto exchanges operate much more integrated businesses than their traditional counterparts by bundling together services like trading, custody, and brokerage which are typically separate and distinct on Wall Street. 

"The allegations are not just that there was selling of securities," Fischer said. "Both [complaints] focus very heavily on the argument that both combine functions that should be separate. By doing that they are taking multiple roles all without being registered." 

Coinbase has argued that it has tried in earnest to engage with the SEC on creating a registration path, noting in a March blog post that it "proposed two different registration models. We spent millions of dollars on legal support to build these proposals and repeatedly asked for the SEC’s feedback. We got none."

CEO Brian Armstrong has warned that the regulatory uncertainty in the U.S. could push the industry offshore and result in a national security issue for the country.

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.