Coinbase executives doubled down on the possibility of taking the SEC to court a day after the regulator warned the crypto company it could bring an enforcement action against it.
The SEC hit Coinbase with a Wells notice Wednesday about alleged securities violations. Coinbase said in a statement Wednesday it is “confident in the legality of [its] assets and services,” adding that the regulator’s claims lacked detail about specific problems.
Coinbase CEO Brian Armstrong said during a Twitter Space Thursday that while the SEC’s move wasn’t totally unexpected, it was “a very strange outcome” after the firm met with the regulator roughly 30 times during the last nine months.
“I think the courts could maybe actually give us some clarity here,” Armstrong said. “In a way we’re happy to go to court if that’s what it takes to finally get some case law developed for this industry so the industry can be built in a safe, trusted and regulated way here in America.”
The regulator is targeting Coinbase Prime and Coinbase Wallet, according to the Wells notice — a letter that follows an investigation and precedes a potential enforcement action.
The SEC declined to comment further.
The SEC’s latest Wells notice against Coinbase reflects a belief by some in the US that crypto industry players seek to take advantage of regulatory loopholes, Crypto Council for Innovation CEO Sheila Warren said in a Thursday statement.
“What’s true is that a reprehensible amount of resources and brainpower have been spent in the US trying to engage with this SEC and trying to create substance and a path out of the wraithlike comments issued by the agency,” Warren said. “Are we really going to allow one agency in the US to set the entire trajectory of an innovation for the entire country, especially if that agency refuses to engage with the industry it is trying to regulate?”
Armstrong said while other US regulators — such as the CFTC and state agencies — have been “reasonable” to work with, the SEC has been “a real outlier.”
Despite many meetings with the SEC and Coinbase spending tens of millions of dollars in legal fees, Armstrong said, the agency has not offered feedback to the company.
Policy by enforcement is the “worst possible way” to move a nascent space forward, Coinbase Chief Policy Officer Faryar Shirzad said during the Twitter Space.
Despite a lack of US crypto policy movement thus far, Shirzad said he is confident politicians will start to respond to aggressive actions against the crypto industry.
“I think what you’ll see now over the next few weeks is that Congress is going to step up,” he said.
White House crypto stance said to be “disappointing”
The warning to Coinbase came the same day the SEC launched a lawsuit against Tron Network founder Justin Sun for allegedly selling unregistered securities. Sun tweeted that the complaint “lacks merit.”
The SEC’s Office of Investor Education and Advocacy then renewed its warning about crypto risks in an investor alert Thursday, stating that “investments in crypto asset securities can be exceptionally volatile and speculative.”
The alert said that crypto companies may not be complying with federal securities laws. It added that proof-of-reserves efforts “may not provide any meaningful assurance that these entities hold adequate assets to back their customers’ balances.”
The White House has even weighed, saying in its annual Economic Report of the President earlier this week that the design of digital assets “frequently reflects an ignorance of basic economic principles.”
“Indeed, crypto assets to date do not appear to offer investments with any fundamental value, nor do they act as an effective alternative to fiat money, improve financial inclusion, or make payments more efficient,” the report states. “Instead, their innovation has been mostly about creating artificial scarcity in order to support crypto assets’ prices — and many of them have no fundamental value.”
Blockchain Association CEO Kristin Smith called the latest White House report “disappointing.”
“While other countries are increasingly receptive to the burgeoning crypto industry, some in government appear increasingly allergic to its promise, sending companies and innovators offshore,” she said in a statement the day later. “We urge the Biden administration to consider how it will be remembered: as a leader of profound innovation or a roadblock to a global tech revolution.”
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