Coinbase CEO on SEC lawsuit: “It will be resolved.”

Coinbase Global (COIN) CEO Brian Armstrong spent much of Wednesday publicly fending off a new legal challenge from the Securities and Exchange Commission and offering assurances that the company would weather its current turmoil.

“It’s business as usual right now” for Coinbase, he said Wednesday night at a Piper Sandler event. “It will be resolved,” he added.

The SEC alleged in its case that Coinbase, the largest crypto exchange in the United States, violated securities laws by acting as an exchange, broker and clearing agency without registering with the agency. . The SEC also said Coinbase offers and sells securities without registering its offers and sales.

Armstrong challenged that view at the Piper Sandler event and in separate TV appearances on CNBC and CNN, saying the SEC ignored Coinbase for years despite attempts to fix regulator issues or clarify rules. .

“I don’t really think there’s a way to sign up, there’s hardly any way to do it. We’ve tried many times in the United States,” Armstrong said at the event. Piper Sandler.

Coinbase, he said, has met the SEC 30 different times. “Frankly, we had a bit of a chilly reception,” Armstrong said of the first of those meetings.

NEW YORK, NY - MAY 15: Coinbase Founder and CEO Brian Armstrong attends Consensus 2019 at Hilton Midtown on May 15, 2019 in New York City.  (Photo by Steven Ferdman/Getty Images)

Coinbase founder and CEO Brian Armstrong. (Photo by Steven Ferdman/Getty Images)

When Armstrong asked the SEC how Coinbase should comply with regulations, he replied that the agency would not give legal advice to Coinbase and that it should talk to its attorneys.

Coinbase stock rose 3.2% on Wednesday.

In an interview with CNBC, Armstrong called the US crypto regulatory landscape an “outlier” among countries. He highlighted the conflicting views between the SEC and the Commodities Futures Trading Commission on which agency should regulate the spot crypto market. Nor has the jurisdiction been enshrined in law.

SEC Chairman Gary Gensler has repeatedly stated that crypto firms that issue or offer for sale cryptocurrencies that count as securities must enter and register with securities regulators or do facing charges.

The SEC’s framework for valuing digital assets as securities is based on the so-called Howey test. This may be related to a 1946 Supreme Court case involving tracts of Florida orange groves sold by WJ Howey Co. and leased to the company.

The Supreme Court called these sale-leaseback agreements investment contracts, meaning they had to be registered with the SEC. He also defined what constitutes a security: “an investment of money in a common enterprise the profits of which derive solely from the efforts of others”.

In the SEC’s complaint against Coinbase, it identified 13 different cryptocurrencies traded through the exchange as securities. For offering the securities for sale, Coinbase violated securities laws, according to the agency.

Coinbase discloses its own token listing standards on its website, asking applicants questions related to the Howey test. The company claims that it refuses 90% of the applications it receives based on legal standards.

The company increased the number of cryptocurrencies on its listings after 2019, doubling its total listed assets by the end of 2020 and then doubling it again by the end of 2021, according to the company’s legal complaint. DRY. During this period, Coinbase listed crypto assets with higher “risk” scores based on a Howey Test-like scoring framework it had adopted.

“To achieve exponential growth of the Coinbase platform and increase its own trading profits, Coinbase made the strategic business decision to add crypto assets to the Coinbase platform even when it recognized that crypto assets had the characteristics of the securities,” the SEC alleged.

“There’s nothing voluntary about it,” SEC Chairman Gary Gensler said in a Wednesday briefing with reporters about the IPO process.

“It’s like casino capitalism or something,” he said of the industry’s reluctance to register. None of the top 20 cryptocurrencies by market capitalization have registered with the agency.

Armstrong said “it’s business as usual right now” for Coinbase. The company will continue to allow trading in assets that the SEC considers securities.

“It will be resolved,” he added.

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