Coinbase, one of the largest U.S.-based cryptocurrency exchanges, has filed a 177-page answer to the complaint introduced by the U.S. Securities and Exchange Commission (SEC), where the agency states the company was involved in the illegal brokerage of securities. Coinbase alleges that the institution lacks “any powers to regulate” cryptocurrency exchanges and that this enforcement action “offends due process and the constitutional separation of powers.”
Coinbase Contests SEC Powers to Regulate Cryptocurrency Exchanges
Paul Grewal, CLO of Coinbase, the largest U.S.-based cryptocurrency exchange, announced the filing of an answer to the complaint presented by the U.S. Securities and Exchange Commission (SEC), where the institution accuses the Coinbase of unregistered securities brokerage.
In the 177-page document, Coinbase explains that in April 2021, the SEC approved its registration to go public through an IPO on Nasdaq, “allowing Coinbase’s shares to be sold to millions of retail and institutional investors.” However, the recent filing of this enforcement action against the exchange contradicts the prior approval of its business model.
Coinbase criticizes the newfound position of the institution regarding cryptocurrency exchanges, stating that:
No statute enacted since April 2021 gives the SEC any powers to regulate digital asset exchanges, much less retroactively. The only change is in the SEC’s position regarding its powers.
Furthermore, the filing claims that this enforcement action, based on the SEC’s change of face, “offends due process and the constitutional separation of powers.”
Gensler vs. Gensler
The document also presents a timeline of how the views of SEC Chair Gary Gensler changed on the SEC’s faculties in the cryptocurrency space. Coinbase explains that in May 2021, Gensler testified before Congress stating the SEC “lacked statutory authority to regulate businesses like Coinbase,” putting the responsibilities of this task on Congress, citing a “regulatory gap.”
However, Gensler’s positions changed over time, and according to Coinbase, by the end of 2022, he stated: “I feel that we have enough authority, I really do, in this space,” for requiring crypto companies to register as securities exchanges.
About this, Coinbase’s filing declares:
The SEC also now asserts the authority to extract punitive retroactive penalties from companies for failure to recognize powers its own Chair was disclaiming two years ago.
Coinbase concluded that even if the SEC’s changes regarding securities were “colorable,” the major questions doctrine, a U.S. legal principle that states courts will presume that Congress does not delegate to executive agencies issues of major political or economic significance, would require courts to reject this construction.
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