The U.S. Securities and Exchange Commission (SEC) had asked Coinbase to stop trading in all cryptocurrencies except bitcoin before suing the cryptocurrency platform, the Financial Times reported on Monday. The SEC it was alleged that Coinbase was operating as an unregistered exchange, broker, and clearing agency for securities. If the company had complied with the SEC’s request, it would have set a dangerous precedent that could leave the majority of crypto exchanges in the U.S. outside of the law unless they registered with the SEC.
Coinbase CEO Brian Armstrong told the F.T. that the SEC made the recommendation before launching legal action against the Nasdaq-listed company last month for failing to register as a broker. The SEC’s case identified 13 mostly lightly traded crypto assets that the regulator considered securities.
In a blog post, Coinbase Chief Legal Officer Paul Grewal said the company had received a Wells notice from the SEC in March, a formal warning that it was about to face enforcement action. Despite that, the company decided to continue serving customers and had no plans to delist any assets from its platform. “Our view has always been that the SEC’s legal complaint is not valid, and if we are forced to delist assets, we will do so only after careful consideration of our customer’s interests and the law,” he said.
Grewal noted that the SEC’s claims in its lawsuit were based on a very narrow interpretation of what the law considers to be a security. Specifically, the SEC argued that the Coinbase staking-as-a-service program violated securities laws by pooling customer coins to perform blockchain transaction validation services and redistributing a portion of rewards earned in those transactions to Coinbase.
He added that he did not believe the SEC’s argument that it is illegal for Coinbase to offer this service was sound, given that several other companies have done so and with no apparent issues. The SEC declined to comment on the report, but it has previously signaled that it is pushing for greater oversight of the crypto industry. Its chair, Gary Gensler, has on numerous occasions categorized Bitcoin as a commodity and implied that most other digital tokens are commodities.
Armstrong said compliance with the SEC’s request to delist all assets other than Bitcoin would have “essentially meant the end of the crypto industry in the U.S.” Instead, the company challenged the SEC’s claims in court. The decision is expected by late July. The F.T.’s sources said the SEC has not formally requested other companies to delist assets from their platforms. However, it has been known to make recommendations to companies during investigations. During a call with reporters on Tuesday, Gensler said the SEC’s litigation efforts would not affect the pace of innovation in the crypto space. “We want to encourage innovation and growth of crypto, but it is up to the market to determine whether new products and offerings are securities and should be regulated,” he said.
