SEC Does Not Consider Allowing Coinbase to Go Public as a ‘Blessing’ for the Business

The U.S. Securities and Exchange Commission (SEC)

The U.S. Securities and Exchange Commission (SEC) has argued in court that approving a firm’s S-1 application to go public does not represent a “blessing” from the agency, nor provide a verification that the business is regulatory compliant.

SEC’s Assertion in Court

As per July 13 court documents from the pre-motion hearing of the SEC vs Coinbase case, the SEC asserted that it was not signing off on Coinbase’s business structure when giving it the green light to go public back in April 2021.

SEC trial counsel Peter Mancuso said, “Your Honor, I’ll say that 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.” He further added, “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.”

On crypto Twitter, several people including Gemini co-founder Cameron Winklevoss highlighted the implications of such statements, as they questioned why the SEC would allow a supposedly non-compliant business to go public in the first place, given that its goal is to protect U.S. consumers.

S-1 Filing and Business Structure

U.S.-based firms are required to submit an S-1 filing with the SEC before they can start listing their shares on a national stock exchange. As part of the filing, companies need to provide a comprehensive rundown of their business structure and how proceeds from an Initial Public Offering will be used.

Following Mancuso’s comments, U.S. District Judge Katherine Polk Failia expressed her skepticism and raised questions about the SEC’s diligence and its role in evaluating the registration statement.

Judge Failia said, “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,” and added, “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 argument that the S-1 filings are more focused on approving company disclosures, rather than the agency itself signing off on a business structure via an approval.

Judge Failia then questioned Mancuso if the SEC could have told Coinbase to “Hey, you guys need to register as a securities exchange.”

Mancuso replied, “I can’t really speak to that.”

SEC’s Charges Against Coinbase

The SEC initially charged Coinbase for alleged unregistered securities offerings dating back to 2019. Coinbase is pushing for an early dismissal of the case on several grounds, with one of its arguments being that the SEC is charging the firm despite its business structure and planned activities being “exhaustively described” to the agency before the Coinbase IPO.