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Coinbase’s chief legal officer Paul Grewal called for Congress to adopt a draft bill laying out a regulatory framework around cryptocurrency transactions right after the Securities and Exchange Commission sued his company for failing to register with the agency.
Straying briefly from his prepared remarks to address the lawsuit, Grewal called the SEC’s move “disappointing, but not surprising.” He criticized the agency for what he said is its “reliance on enforcement-only approach”, and said the new rules under the proposed bill were needed to establish clearer regulations for the crypto industry.
“The solution is legislation that allows fair rules for the road to be developed transparently, and applied equally, not litigation,” said Grewal. “Despite today's complaint, we will continue to operate our business as usual."
The SEC’s action arrives on ahead of a previously scheduled hearing before the House Agriculture Committee on a GOP-led bill called the Digital Asset Market Structure Discussion Draft. Ahead of his testimony, Grewal called the bill a "strong step forward in providing over regulatory clarity", and urged Congress to move quickly to adopt it.
While there are many details to be ironed out, the Digital Asset Market Structure Discussion Draft is a strong step towards developing a regulatory regime that embraces innovation, maintains US industry presence and protects consumers.
— paulgrewal.eth (@iampaulgrewal) June 5, 2023
While Grewal was testifying before Congress, Coinbase released an ad criticizing the SEC for failing to offer any guidance or rules for how to operate legally in the crypto space. The ad echoes previous arguments by Coinbase that the SEC was aware of the kind of business it was operating before it went public in 2021.
This proposal lays out when a digital asset would be regulated as a security or a commodity, which would also establish lanes for which regulator has authority over the asset. It would also create a definition for when a network can be considered “decentralized”, an important clarification that would determine whether an issuer answers to the SEC or CFTC.
This hearing comes amid an SEC enforcement blitz that has rattled the crypto industry.
On Monday, the agency sued Binance, the world’s largest cryptocurrency exchange, on allegations of violating securities laws that include failing to register as an exchange and engaging in unregistered crypto transactions. Binance denied the charges and accused the SEC of overreach.
In their lawsuit against Coinbase, the SEC similarly alleges that the company failed to register as an exchange, clearing house and broker, and that it was offering and selling unregistered securities through its staking service. Some of the assets the SEC called securities include Solana, Cardano and Polygon.
After news of the SEC lawsuit emerged, Coinbase’s share price on Nasdaq fell by more than 21% to $45.98 before slowly regaining value. At the time of writing, COIN was trading at $51.17.
Coinbase’s latest clash with the SEC is part of a longer struggle between the two. In March, Coinbase received a Wells Notice from the SEC, a prelude to the lawsuit that was filed on Tuesday. Coinbase CEO Brian Armstrong sharply rebuked the agency for what he characterized as its unfair and unreasonable approach to regulating digital assets.
5/ Going forward the legal process will provide an open and public forum before an unbiased body where we will be able to make clear for all to see that the SEC simply has not been fair, reasonable, or even demonstrated a seriousness of purpose when it comes to its engagement on…
— Brian Armstrong 🛡️ (@brian_armstrong) March 22, 2023
In response, the company responded by asking a federal court in April to force the SEC into issuing clearer crypto regulations. Coinbase previously sent the SEC its so-called "petition for rulemaking" last summer, but no response was provided, said Grewal during his testimony.
For its part, the SEC has been adamant that it is acting properly with its enforcement actions in the crypto space have been warranted based on what it alleges are crypto exchanges’ violations of existing securities laws.
Following its announcement of the Coinbase lawsuit, the SEC's director of enforcement Gurbir Grewal (no relation to Paul Grewal) accused Coinbase of making "calculated decisions" that deprived investors of regulatory protections by avoiding registration.
"You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: the consequences for the investing public are far too great,” said the SEC’s Grewal.