SEC on Public Approval of Coinbase

The SEC has maintained in court that clearing a firm’s S-1 application to go public does not constitute a “blessing” or a confirmation of regulatory compliance.

According to July 13 court documents from the SEC vs. Coinbase pre-motion hearing, the SEC did not approve Coinbase’s company structure when it allowed it to go public in April 2021.

SEC trial counsel Peter Mancuso stated, “Your Honor, simply because the SEC allows a company to go public does not mean that the SEC is blessing the underlying business or the underlying business structure or saying that the underlying business structure is not in violation of the law.”

On Crypto Twitter, several people, including Gemini co-founder Cameron Winklevoss, pointed out the ramifications of such statements, questioning why the SEC would allow a presumably noncompliant corporation to go public given its aim of protecting U.S. customers.

Before listing on a national stock market, U.S. companies must file an S-1 with the SEC. Companies must describe their business structure and how they will use IPO revenues in their filing.

“There is no way that an approval of an S-1 is a blessing of a company’s entire business. In fact, there is no evidence being put forth that the SEC looked at specific assets and made specific determinations and then gave Coinbase comfort that this would not later be found to be a security.”

After Mancuso’s remarks, U.S. District Judge Katherine Polk Failia said, “Let’s just pause so I can just sort of get rid of the skepticism I currently have as I hear that answer,” before asking more questions.

“I am not saying that the commission should be omniscient at the time it’s evaluating a registration statement and that it should know all things,” she said.

I“But I would have thought the commission was doing diligence into what Coinbase was doing, and somehow I thought that it would say, you know, you really shouldn’t do this. This is violative of the securities laws, or we are kind of in some interesting unchartered territory here with respect to whether the assets on your platform are securities, so be forewarned that maybe someday there could be a problem.”

In response, Mancuso reiterated the SEC’s claim that S-1 filings are more about approving company disclosures than a business structure. Failia asked Mancuso if the SEC could not have told Coinbase, “Hey, you guys need to register as a securities exchange.”

“The SEC could do that, right?” she asked. “I can’t speak to that,” Mancuso said. The SEC initially charged Coinbase for 2019 unregistered securities offers.

Coinbase wants the case dismissed early because the SEC charged the firm despite its business structure and planned actions being “exhaustively described” to the agency before the Coinbase public offering.