Coinbase CEO hits back at SEC chair after lawsuit, says user funds are safe

June 7 (Reuters) – Coinbase ( COIN.O ) Chief Executive Brian Armstrong on Wednesday hit back at U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler over the agency’s lawsuit against the crypto exchange. Ensuring that customers’ funds are safe.

The SEC alleged on Tuesday that Coinbase traded at least 13 crypto assets that are securities that must be registered, including tokens such as Solana, Cardano and Polygon. Coinbase also operates as an unregistered exchange, broker and clearing house, the company said.

Armstrong, an outspoken critic of the SEC, who has fueled a push in Washington for clearer crypto rules, told a Bloomberg conference that the company approached the regulator about registering, but received an “icy reception” from Gensler in their first meeting.

Gensler has long argued that most tokens constitute securities, permanently asserting the SEC’s authority over the crypto market. The US President’s Task Force on Financial Markets has said that some currencies linked to fiat currencies may be securities.

Crypto companies including Coinbase have repeatedly called on the SEC to create clearer rules, denying that crypto tokens are securities.

“The SEC chair is really an outlier,” Armstrong said, adding that many of the lawmakers he spoke with were in favor of creating a clearer regulatory framework for the technology.

Coinbase shares rose nearly 3.1% to $53.2 on Wednesday.

A spokeswoman for the SEC declined to comment.

The SEC sued Binance, the world’s largest cryptocurrency exchange, on Monday, accusing it of selling cryptocurrency products without registering as securities. It said Binance artificially inflated trading volumes, diverted customer funds and failed to keep US customers off its platform.

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Armstrong was quick to point out the differences between the two events, telling CNBC they “couldn’t be more different.”

“In the case of Coinbase, for example, there was no allegation of misappropriation of customer funds,” he added.

Speaking to Reuters late on Tuesday, the company’s chief legal officer, Paul Grewal, said he was “confident” the SEC would not try to freeze Coinbase’s assets, as it did in the case of Binance. “The standards required for such confiscation of property do not apply in our case,” he said.

Binance did not immediately respond to a request for comment. In a statement on Monday, Binance vowed to defend itself against the lawsuit, saying it reflected the SEC’s “wrongful and conscious refusal” to provide clarity to the crypto industry.

Breakdown of solution

This isn’t the first time Armstrong, who co-founded Coinbase in 2012 after working as a software engineer at Airbnb, has been targeted by the SEC. After warning Coinbase that it would sue the company if it moved forward with a planned lending program in 2021, the agency accused it of “truly egregious behavior” in a series of tweets. Coinbase later raised the product.

Last July, Coinbase disclosed an SEC investigation into its asset listing processes, staking programs and yield-generating products. In the first quarter of this year, Coinbase lawyers discussed a possible settlement with the SEC that would involve the company paying fines and providing a path to registration with the agency, according to a source with knowledge of the discussions.

But those talks broke down in March when the SEC clarified its position that fundamental aspects of the company’s business model were fundamentally illegal. Coinbase received a notice from the SEC that it planned to take enforcement action against the company in the same month.

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Coinbase has been pushing the SEC to create new crypto-specific regulations since last year, and in April asked the U.S. Court of Appeals for the Third Circuit to compel the regulator to do so. The court on Tuesday directed the SEC to file a reply within a week.

Grewal said despite the lawsuit, Coinbase would still be interested in a conversation with the SEC about bringing the cryptocurrency under regulatory purview.

“If there’s an opportunity for a real conversation, of course we’ll take it, but I want to be very clear: Coinbase is absolutely committed to defending itself in court,” he said.

Reporting by Hannah Long in Washington and Manya Saini and Niketh Nishant in Bangalore; Additional reporting by Chris Prentice; Editing by Shaunak Dasgupta, Michelle Price and Diane Croft

Our Standards: Thomson Reuters Trust Principles.

Hannah Long

Thomson Reuters

Hannah Long covers financial technology and cryptocurrency, including the businesses that drive the industry and the policy developments that govern the sector. Hannah previously worked at American Banker, where she covered banking regulation and the Federal Reserve. He graduated from the University of Maryland, lives in College Park and Washington, DC.

Manya Saini

Thomson Reuters

Manya Saini reports on publicly listed US financial institutions, including Wall Street’s biggest banks, card companies, asset managers and fintechs. Covers initial public offerings on US exchanges, late-stage venture capital funding, along with news and regulatory developments in the cryptocurrency industry. His work typically appears in the Future of Finance, Markets, Business and Money sections of the website. Contact: 9958867986

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