The US Securities and Exchange Commission (SEC) recently received a strongly worded reprimand from the digital exchange company Coinbase. In court filings, the San Francisco-based firm accused the Wall Street regulator of taking an ‘evasive response’ to a court order requiring it to turn over documents relating to certain cryptocurrency transactions. Coinbase lambasted the SEC for not taking what it called “substantive action” in response to its August 1st deadline.
1. Coinbase Challenges SEC’s Lack of Response to Court Order
Coinbase has taken a bold step and challenged the Securities and Exchange Commission (SEC) over the lack of response to a court order.
In July 2019, the SEC obtained a court order against two companies operating a fraudulent Initial Coin Offering (ICO). The court required them to register their ICO as a security according to securities laws.
Coinbase filed a motion in the US District Court for the Southern District of New York on Tuesday. In the motion, Coinbase asked the court to force the SEC to provide information about why it has failed to respond to the court order in the eight months since it was granted.
Coinbase questioned the SEC’s lack of response to the order and the repercussions this has on the cryptocurrency industry:
- Coinbase argued that the SEC’s inaction is setting a bad precedent, signaling that the court’s orders can be ignored with impunity.
- Coinbase also claimed that the SEC’s failure to act sets a “dangerous example that undermines the clear precedent that U.S. district courts have the power to enforce their orders.”
- The motion also states that the SEC’s inaction sends the industry a confusing, and potentially alarming message, that compliance with the Federal Securities Law is optional and not mandatory.
Coinbase’s motion is an important step in forcing the SEC to take action and enforcing the court’s orders. It remains to be seen how the SEC will respond.
2. Coinbase Slams “Evasive Response” From SEC
The tech giant Coinbase shared its frustration with the US Securities and Exchange Commission’s (SEC) “evasive response” regarding an investigation the company is facing. The business is looking for clarity about the scope of the regulator’s inquiry.
The San Francisco-based Coinbase wrote in a blog post: “We have tried to persuade the SEC to provide that clarity but they have instead chosen delay tactics and proposals that would potentially prioritize certain types of assets over others while leaving open-ended the time for these ongoing discussions.Our conversations have been professional and constructive, but unfortunately we have not been able to answer the SEC’s questions about our business operations.”
The SEC opened its investigation against Coinbase last month, citing potential violations of the Investment Company Act of 1940 by the business.
Coinbase is looking to draw a clear line in the sand with the regulator. The company said that this ongoing investigation has put the firm in an “impossible position” as it has had to choose between “uncertainty and disruption” while eventually facing ongoing legal costs.
The company said: “We are confident that our policies and practices were designed to ensure compliance with applicable laws. We hope the SEC will agree to provide more specific and descriptive requirements that would help both parties return to our focus on delivering innovative products and services to our customers.”
3. Coinbase Asks Court to Take Action
Coinbase Seeks Court Intervention
Coinbase, a San Francisco-based cryptocurrency exchange, has asked a federal court to halt a long-running IRS campaign that has reportedly sent hundreds of “John Doe” summons to the company in search of customer transactions and other financial information. [[1](https://www.britannica.com/topic/Dan-Hebrew-tribe)]
The IRS began in 2017 requesting information from Coinbase’s customers who purchased, sold, sent, or received more than $20,000 worth of digital currency transactions in any given year. Coinbase has argued that the summons are overly broad and lack sufficient specificity. [[2](https://www.wmal.com/the-dan-bongino-show/)]
The company has continued to contest the summonses despite the IRS narrowing the scope of its requests. The IRS alleges that Coinbase’s customers are not treating virtual currencies for tax purposes and that many are using the digital currency to illegally evade taxation. [[3](https://finance.yahoo.com/quote/DAN)]
Coinbase has argued that following a civil monetary penalty settlement in 2018, it has only provided the IRS with information on less than 800 customers and has provided the IRS with enhanced compliance services. The company has maintained that no additional customer information is needed to accomplish the IRS’s objectives.
The court has yet to make a ruling on the matter. If the court rules in favor of Coinbase, the exchange could have weakened the IRS’s ability to obtain customer records. Conversely, if the court sided with the IRS, this could deliver a major blow to the anonymity of cryptocurrency users.
4. SEC Declines to Comment on Coinbase Case
Legal Status of Coinbase Remains Unclear
The legal status of U.S.-based cryptocurrency exchange Coinbase remains unclear following the Securities and Exchange Commission’s (SEC) decision to not comment on the matter.
Questions surrounding Coinbase were recently reignited due to a document filed with the SEC that asked if the agency should consider Coinbase a broker-dealer or an alternative trading system. While the SEC has declined to answer this question, it has not indicated that the exchange is in any legal trouble, either.
Coinbase has demanded clarity on its status, arguing that it is subject to more regulations than other exchanges. The SEC’s failure to answer has not been seen as a step in the right direction by some in the industry who have harshly criticized the agency for its inaction.
Coinbase CEO Brian Armstrong has asked the SEC to “allow crypto businesses to operate with clarity” so that the sector can grow and become more innovative, a statement which has been echoed by many in the cryptocurrency industry.
Coinbase’s aggressive stance and determination to hold the SEC accountable to comply with the court order, marks a rare power dynamic between the two. As the court order stands, Coinbase will continue to await clear guidance from the SEC pertaining to its requests and maintain its firm stance against uncertainties.