The U.S. Securities and Exchange Commission (SEC) argued in court that approving a company’s S-1 application to go public, does not represent a “blessing” from the agency, or provide verification that the business is compliant with regulations.
In the interest of transparency, here is a transcript of our hearing yesterday in the SDNY case that was filed with us by the SEC. We appreciate the Court’s careful consideration. https://t.co/NEEsr05fos
— paulgrewal.eth (@iampaulgrewal) July 14, 2023
As per court July 13 document From the pre-motion hearing of the SEC vs Coinbase case, the SEC confirmed that the SEC did not sign off on Coinbase’s business structure when it gave the go-ahead to go public in April 2021.
“Your Honor, I would say that just because the SEC allows a company to go public does not mean that the SEC is endorsing the underlying business or the underlying business structure or saying that the underlying business structure is not unlawful,” SEC hearing Counsel Peter Mancuso said, adding that:
“There is no way the S-1 approval will be a blessing for the company’s entire business. In fact, no evidence has been filed that the SEC looked at a particular asset and made a specific decision and then gave Coinbase comfort that it would not later be discovered to be a security.”
On crypto Twitter, several people including Gemini co-founder Cameron Winklevoss highlighted the implications of the statement, as they questioned why the SEC would allow a supposedly non-compliant business to go public, given its goal is to protect the US. consumer.
So they allow IPOs to be illegal businesses and let Americans invest in them? lmao seconds are ripe
— Metatron (@metatron_0x) July 14, 2023
US-based companies are required to file S-1 filings with the SEC before they can begin listing their shares on national stock exchanges. As part of the submission, companies need to provide a comprehensive overview of their business structure and how the proceeds from the Initial Public Offering will be used.
Following Mancuso’s comments, U.S. District Judge Katherine Polk Failia said: “Let’s pause so I can dispel the skepticism I have right now when I hear that answer,” as she proceeded to ask several questions.
“I’m not saying that the commission has to be omniscient when evaluating registration statements and has to know everything,” he said, adding:
“But I would think that the commission did research into what Coinbase was doing, and somehow I think that would say, you know, you shouldn’t be doing this. Either this violates securities laws, or we are in some interesting uncharted territory here with regards to whether assets on your platform are securities, so be forewarned that there may be issues one day.”
In response, Mancuso ultimately reaffirmed the SEC’s argument that S-1 filings focused more on agreeing to corporate disclosures, rather than the agencies themselves signing off on business structures through approvals.
Judge Failia later told Mancuso that the SEC was unable to tell Coinbase: “‘Hey, you guys have to register as a stock exchange.'”
“That’s the SEC’s power to do that, right?” he asked.
“I really can’t speak to that,” Mancuso replied.
Related: It’s time for the SEC to settle Coinbase and Ripple
The SEC initially charged Coinbase for allegedly offering unregistered securities dating back to 2019.
Coinbase pushed for an early termination of the case for several reasons, with one of the arguments being that the SEC sued the company even though its business structure and planned activities were “deeply explained” to the agency prior to Coinbase’s IPO.
The SEC is torn apart in court and won’t be stopping anytime soon. https://t.co/jr1jinoc5D
—Jake Chervinsky (@jchervinsky) July 15, 2023
Magazine: Crypto Regulation — Does SEC Chairman Gary Gensler have the final say?