Coinbase CEO and General Counsel jointly respond to SEC, SEC Chairman also films another video criticizing crypto exchanges.

Coinbase's CEO and General Counsel joined forces to respond to the SEC's Wells notice, emphasizing that Coinbase's business model has not changed from before going public to the present. They stated that if the SEC believes Coinbase has violated the law, then the SEC would essentially be contradicting itself by having allowed Coinbase to go public in the first place, supposedly to protect the interests of investors. The General Counsel also mentioned the shift in the SEC's stance from "needing legislation" to being "capable of regulating crypto," which seems to have begun after the bankruptcy of FTX.

Coinbase Responds to SEC Wells Notice

Bitcoin Could Bring Breakthrough to Financial System

Coinbase CEO Brian Armstrong stated that after reading the Bitcoin whitepaper in 2012, he believed it could be a significant technological breakthrough.

At that time, he was still an engineer at Airbnb, and living in Argentina for a year made him understand the shortcomings of cross-border remittances, hyperinflation, and the scarcity of financial services in traditional financial systems.

This was the first time he thought about starting a company.

Early Bitcoin OG: Don't Open an Exchange in the U.S.

From then on, Armstrong began attending Bitcoin meetups in San Francisco, where everyone advised against opening an exchange in the U.S. due to the complexity of dealing with 50 state-level regulatory agencies and federal regulators.

However, Armstrong believed that as a financial and technological center, and a country based on the rule of law, the U.S. could collaborate with regulatory agencies in good faith. Eventually, Coinbase became the first publicly listed cryptocurrency exchange in the U.S.

SEC Chair Gary Gensler's Inconsistent Statements

General Counsel Paul Grewal stated that despite no changes in Coinbase's business after becoming a public company in 2021, they recently received a Wells notice from the SEC.

SEC Chair Gary Gensler, one month after Coinbase's IPO, mentioned during a congressional hearing that there was no regulatory framework for crypto trading by the SEC or CFTC, but the next day expressed intentions to collaborate with Congress to establish relevant regulatory frameworks.

Two years later, Coinbase's business seemed to suddenly fall under existing U.S. laws, with the SEC alleging that Coinbase's operations violated federal securities laws.

What Changed Gensler's Stance: FTX Bankruptcy

Grewal pointed out that although FTX and Coinbase have completely different business models, FTX's bankruptcy apparently changed the SEC's perspective entirely.

In an interview in December last year, Gensler stated, "I believe we have sufficient authority in the crypto space to regulate."

Gensler's December interview with Yahoo Finance: Securities laws do not need separate laws for cryptocurrencies

Grewal emphasized that Gensler's recent statements contradicted his testimony in Congress two years ago, with no new cryptocurrency regulatory laws enacted during that time. The CFTC recently classified Bitcoin, Ethereum, Litecoin, and stablecoins as commodities, which contrasts with the SEC's views.

Coinbase Does Not List Securities: We Reject 90% of Cryptocurrencies

Grewal stated:

I want to tell the SEC directly that Coinbase does not list securities. We follow SEC guidelines to ensure we do not list securities and have rejected listing around 90% of cryptocurrencies. Being conservative actually helps our trading business make more money.

1/  Today we’re sharing our “Wells response” to the SEC. As part of our response, @iampaulgrewal and I sat down to explain why we’re confident in the facts and on the law, and why a Wells notice is not in the best interest of the US. https://t.co/zkNaWGgtcK

— Brian Armstrong 🛡️ (@brian_armstrong) April 27, 2023

Coinbase: Will Double Defeat SEC on Facts and Law

Coinbase not only responded to the SEC with a video but also officially replied to the SEC's Wells notice with a document, stating that Coinbase's law firm Sullivan & Cromwell:

Believes that the SEC will fail on both factual and legal grounds in the Coinbase case. If the SEC believes that Coinbase violated securities laws in its core business in April 2021, the SEC should have prevented the registration statement from becoming effective to protect investors.

The document warned that Coinbase is a compliant company, and if the SEC tries to go after Coinbase, it may deter other companies from prioritizing compliance, and the SEC's inconsistent stance could harm its reputation.

Gensler Also Releases Video: Exchanges Deceiving Customers

Gensler used the analogy "walking a dog requires a leash" to describe compliance in the crypto market. The media outlet The Block described Gensler's released video as a "latest pet-themed video." In the video, Gensler stated:

In many places in the U.S., you need a leash to walk your dog. Suppose you get stopped by the police because Rover is roaming freely. What do you think would happen if you told the police that Rover is actually a goldfish? You would still get fined by the police because the law focuses on what something actually is, not what you perceive it to be. It doesn't matter if you call yourself an offshore exchange; if you provide securities trading to U.S. investors, you must comply with U.S. law.

After issuing the Wells notice, the SEC has up to six months to decide whether to bring charges.