Key Takeaways:
- The US Securities and Exchange Commission sued crypto exchanges Coinbase and Binance.
- The agency argues that Coinbase traded in unregistered securities.
- However, the SEC has failed to register crypto exchanges. It has also not defined what constitutes an unregistered security.
YEREVAN (CoinChapter.com) — The US Securities and Exchange Commission (SEC) and its Chair, Gary Gensler, are back on a suing spree against cryptocurrency exchanges. Coinbase, a popular exchange, is its latest victim following similar action against global giant, Binance.
The securities regulator accused Coinbase of “operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency.” It further insists that the exchange sold unregistered securities.
In essence, Gary Gensler and the gang are saying that Coinbase failed to register with the SEC. Their demand, at first glance, makes total sense. To run an exchange, you must register it with the regulatory body. The only question is- HOW?
As hilarious and perplexing as it may seem, there is absolutely no way you can register with them. The SEC has not given any clear regulatory roadmap. They have failed to establish any rules for exchanges (or the wider crypto community, for that matter) to follow.
Conveniently, they have left the area as gray as possible to sue companies and claim they broke the law. Only which law they broke or what regulations did they fail to abide by is still a mystery.
To make matters worse, the SEC and the Commodity Futures Trading Commission (CFTC) don’t even agree on a security and a commodity. They have made conflicting statements in this regard.
Yet, the SEC wants to charge Coinbase with breaking the law by trading in securities. Shouldn’t you first define security before anything else, Mr. Gensler?
Also Read: SEC vs Exchanges Battle Made Crypto Ripe for a Takeover, Says Soros Fund Management
Coinbase tried to register with the SEC but failed
Brian Armstrong, the CEO of Coinbase, used Twitter on Tuesday to respond to the lawsuit filed by the Securities and Exchange Commission (SEC) against his company.
According to Armstrong, he approached the regulatory body to register. However, his attempts were met with a brick wall.
“Regarding the SEC complaint against us today…Remember: 1. The SEC reviewed our business and allowed us to become a public company in 2021. There is no path to “come in and register” – we tried, repeatedly – so we don’t list securities. We reject the vast majority of assets we review,”
he wrote.
As it turns out, the SEC gives licenses for companies to trade, allowing them to go ahead with an IPO, only to sue them later.
Gensler’s agency didn’t even blink an eye when Coinbase registered to become a NASDAQ-traded company. What do they want from them now?
Recommended: Ethereum Exempted From SEC Lawsuit, Yet Binance Sees $778.6M In ETH Outflows
Brian Armstrong sued the SEC first, seeking clarity
SEC’s case against Coinbase makes it even more bizarre when you realize the lengths Coinbase went to to get clarity from the agency.
As legal expert Emily Meyers pointed out, Brian Armstrong sued the SEC first on the matter.
In July 2022, Coinbase took a step towards regulatory clarity by filing a rulemaking petition with the SEC, seeking guidance for the crypto industry. However, after nine months, the SEC remained unresponsive to Coinbase’s request.
Frustrated with the lack of action, Coinbase decided to take the matter to court. In April 2023, it sued SEC, hoping to obtain a resolution to its rulemaking petition.
The SEC, meanwhile, requested the court to deny Coinbase’s request.
Before the court could rule on the matter, the SEC sued Coinbase.
On June 7, 2023, the court granted the SEC a seven-day deadline to address three crucial questions.
The court asked the SEC whether it had already decided to reject Coinbase’s petition for regulatory guidance. The second question seeks to determine how much additional time the SEC requires if it hasn’t decided yet.
Finally, the Circuit Court Judge, Cheryl Ann Krause, asked why it should not maintain jurisdiction and mandate periodic reports or establish a deadline for ruling on Coinbase’s petition, provided the SEC has not decided.
The SEC is accountable for the rulemaking process. Crypto companies like Coinbase should not run after regulators to obtain regulations. It is the job of Gary Gensler and his team to provide them.
Also Read: Op-Ed: The US Securities and Exchange Commission: Corrupt, Crooked and Biased?
Even crypto exchange Robinhood tried to register
Coinbase is not the only cryptocurrency exchange that tried to register with the Securities and Exchange Commission. Earlier this week, Robinhood also revealed that it faced a similar problem.
In a testimony to US lawmakers, Dan Gallagher, the chief compliance lawyer at Robinhood, revealed the difficulties faced by the SEC. According to him, the trading firm actively tried to register as a special-purpose broker for digital assets.
The attempts came after Gary Gensler urged crypto firms to come forward and complete the registration process.
However, when they tried, it was a waste of time.
“When Chair Gensler at the SEC in 2021 said, ‘Come in and register,’ we did. We went through a 16-month process with the SEC staff trying to register a special purpose broker dealer. And then we were pretty summarily told in March that that process was over and we would not see any fruits of that effort,”
Gallagher said in his testimony.
Interestingly, Gallagher is a former SEC commissioner with a securities and corporate law background.
Coinbase, whose Chief legal officer Paul Grewal also participated in the House Agriculture Committee hearing, echoes similar complaints.
“When Coinbase has attempted to do just that, to talk about how we could register as a broker-dealer or an ATS [alternative trading system] or even as a NSE [national securities exchange] after months and months of discussion, we’re simply dismissed with no response or any counter proposal or ideas coming back from the SEC,”
Grewal said.
Related: Are Bitcoin and Tether Biggest Beneficiaries of Binance-SEC FUD?
Lawmakers support Coinbase against SEC.
The anger against the agency is not limited to the crypto community. Some US lawmakers have come in support of the crypto exchanges.
Slamming Gansler and his team, several have called for a more clear regulatory policy.
Republican Senator Bill Hagerty accused the SEC of “weaponizing their role to kill an industry.”
“Allowing a company to list publicly and then stonewalling their attempts to register is indefensible,”
he said.
His colleague, Senator Cynthia Lummis, also expressed similar sentiments. She claimed Gary Gensler’s policies “harm consumers.”
Treasury Secretary Janet Yellen also announced she supports regulatory oversight of cryptocurrency to protect consumers and investors.
The SEC and Gary Gensler have failed in their task. They have misused their powers to bully the crypto community instead of laying down proper regulatory rules.
Today, cryptocurrency exchanges cannot register with the SEC nor know what unregistered security is. Good job, Gensler.
