SEC lawsuit sheds light on Coinbase’s management

The United States Securities and Exchange Commission’s (SEC) lawsuit against Coinbase Global on June 6 has sparked inquiries into the crypto exchange’s strategy for dealing with the ongoing crypto regulation.

In a recent discussion with Cointelegraph, venture capitalist Kevin O’Leary harshly criticized Coinbase’s approach towards the current regulatory climate. The serial entrepreneur remarked that the SEC lawsuit caused a massive decrease in Coinbase’s market cap, and that the management appeared to be intent on repeatedly challenging the SEC, alluding to the 17.4% dip in Coinbase’s stock last week. O’Leary went on to say:

Coinbase has devoted numerous months to advocating for more precise crypto regulations in the U.S. as regulatory oversight intensifies. In a recent interview with The Wall Street Journal, Coinbase CEO Brian Armstrong reported that the exchange had conversed with the SEC more than 30 times in the last twelve months without obtaining any responses concerning ways to be compliant.

Stock prices dropping as a result of regulatory action, like the SEC’s case against Coinbase, are often used as an example for private allegations of harm, provided that it is significant enough to have included false statements or omissions, according to Mark Kornfeld, a securities and regulatory lawyer who spoke to Cointelegraph. “The specifics of what is claimed must be established to be true,” Kornfeld pointed out.

Roland Chase, a corporate and securities lawyer, suggested that legal claims from investors who have been damaged by Coinbase and its management may encompass issues such as “the adequacy of the legal analysis that Coinbase carries out when assessing a crypto asset for listing” and the sufficiency of the risk factor disclosure to investors.

If the token’s listing analysis was not satisfactory and Coinbase and its management were aware of this or were careless in not being aware, there could be a potential federal securities law claim against them, as Chase stated.

Coinbase has examined more than a thousand assets, with ninety percent of them being declined. Armstrong stated to the Wall Street Journal, “We considered that some of them could be securities or we had other apprehensions regarding them. We only list a small, cautious amount of the existing assets.”

In its 2021 filing with regulators, Coinbase seemed to anticipate the potential risks it might face in the future. The filing’s risks section stated:

A legal battle with regulators could take years in court and be expensive for the exchange. Ripple, which is currently engaged in litigation concerning XRP’s assumed security status, has spent more than $200 million defending against the SEC’s lawsuit since 2020.

Cointelegraph attempted to contact Coinbase, however, they did not receive a reply.

Does SEC Chair Gary Gensler have the ultimate authority when it comes to crypto regulation?

Categorized in: