Coinbase Global (COIN) CEO Brian Armstrong spent much of Wednesday publicly defending himself against a new legal challenge by the Securities and Exchange Commission and reassuring that the company will weather the current turmoil.
“Right now, things are business as usual for Coinbase,” he said at a Piper Sandler event Wednesday night. “That will be resolved,” he added.
The SEC alleged in its case that Coinbase, the largest crypto exchange in the US, violated securities laws by acting as an exchange, broker, and clearing agency without registering with the agency. The SEC also said that Coinbase offered and sold securities without registering its offerings and sales.
Armstrong disputed this view at the Piper Sandler event and on separate television appearances on CNBC and CNN, saying the SEC ignored Coinbase for years despite trying to address the regulator's concerns or provide clarity on the rules.
“I don't really think there's a way to register, there's basically no way to do it. “We've tried repeatedly in the US,” Armstrong said at the Piper Sandler event.
He said Coinbase has met with the SEC 30 times. “To be honest, we got a little icy reception,” Armstrong said of the first of those meetings.
When Armstrong asked the SEC how Coinbase would achieve compliance, he replied that the agency would not provide legal advice to Coinbase and that it should speak to its attorneys.
Coinbase stock rose 3.2% on Wednesday.
In a CNBC interview, Armstrong called the US crypto regulatory landscape “an outlier” among countries. He cited conflicting views between the SEC and the Commodities Futures Trading Commission over which agency should regulate the spot crypto market. Responsibility is also not anchored in law.
SEC Chairman Gary Gensler has repeatedly emphasized that crypto firms that either issue or offer for sale cryptocurrencies that qualify as securities must register with securities regulators or face criminal charges.
The SEC's framework for evaluating digital assets as securities is based on what is known as the Howey test. It can be traced back to a 1946 Supreme Court case involving Florida orange orchards sold by WJ Howey Co. and leased back to the company.
The Supreme Court referred to these leaseback deals as investment contracts, which meant they had to be registered with the SEC. It also defined what constitutes a security: “a monetary investment in a joint venture where profits come solely from the efforts of others.”
In the SEC's complaint against Coinbase, the SEC identified 13 different exchange-traded cryptocurrencies as securities. By offering to sell these securities, Coinbase violated securities laws, the agency claims.
Coinbase publishes its own token listing standards on its website and asks applicants questions about the Howey test. The company says it rejects 90% of the applications it receives due to legal standards.
The company increased the number of cryptocurrencies listed after 2019, doubling its total listed assets by the end of 2020 and then doubling again by the end of 2021, the SEC's appeal said. During this time, Coinbase listed crypto assets with higher “at risk” ratings based on a Howey Test-like rating framework it adopted.
“In order to realize the 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 realizing that the crypto assets exhibited the characteristics of securities,” claimed the SEC.
“There is nothing voluntary about this,” SEC Chairman Gary Gensler said Wednesday at a news conference with reporters about the securities exchange's registration process.
“It's like casino capitalism or something,” he said of the industry's unwillingness to register. None of the top 20 cryptocurrencies by market cap have registered with the agency.
Armstrong said that for Coinbase, “everything is business as usual at the moment.” The company will continue to permit trading in assets that the SEC claims are securities.
“That will be resolved,” he added.
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