July 26, 2022

Digital Assets: SEC Enforcement Going Directly for the Jugular?

Late yesterday, Bloomberg broke news that the SEC is investigating whether Coinbase allows trading in digital assets that should be registered as “securities.” The charges haven’t been publicly confirmed by the Commission or the company.

This would be an even more direct enforcement attack on the crypto space than last week’s insider trading action. If the SEC pursues the claim & wins this interpretive issue, it would trigger a cascade of rules and may require Coinbase to register as an exchange. Here’s an excerpt:

The US Securities and Exchange Commission’s scrutiny of Coinbase has increased since the platform expanded the number of tokens in which it offers trading, said two of the people, who asked not to be named because the inquiry hasn’t been disclosed publicly. The probe by the SEC’s enforcement unit predates the agency’s investigation into an alleged insider trading scheme that led the regulator last week to sue a former Coinbase manager and two other people.

In a 32-page petition submitted last week (the same day as this blog that the company’s CLO posted in response to the SEC’s insider trading complaint), Coinbase called on the SEC to propose and adopt rules to govern the regulation of digital assets, and accused the Commission of an enforcement-first approach to regulatory challenges. Coinbase – which has enlisted quite a lot of brainpower to analyze these issues – takes the position that the tokens that it lists on its platform aren’t “securities.” Its petition includes 50 multi-part questions for the Commission to consider and seek public input on.

Liz Dunshee