The United States Securities and Exchange Commission (SEC) has argued in court that approving a company’s S-1 filing to go public does not represent a “blessing” from the agency, nor does it provide confirmation that the business is in compliance with the regulations.
According to July 13 court documents from the pre-motion hearing of the SEC vs. Coinbase case, the SEC claimed it did not sign off on Coinbase’s business structure when it gave it the green light to go public back in April 2021[ads1].
“Your Honor, I would say that just because the SEC allows a company to go public, that 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,” SEC Litigation Counsel Peter Mancuso said, adding that:
“There is no way that an approval of an S-1 is a boon to the company’s entire business. In fact, there is no evidence 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 it questions why the SEC would allow a supposedly non-compliant business to go public in the first place, given that its goal is to protect American consumers.
US-based firms are required to file an S-1 with the SEC before they can begin listing shares on a national exchange. As part of the filing, companies must provide a comprehensive overview of their business structure and how the proceeds from an initial public offering will be used.
Following Mancuso’s comments, U.S. District Judge Katherine Polk Failia said: “Let’s just pause so I can kind of get over the skepticism I have now when I hear that answer,” as she asked some questions.
“I’m not saying that the commission should be omniscient at the time it considers a registration statement and that it should know all things,” she said, adding:
“But I would have thought that the commission was diligent about what Coinbase did, and somehow I thought it would say, you know, you really shouldn’t be doing this. This is against the securities laws, or we’re in interesting uncharted territory here as to whether the assets on your platform are securities, so be aware that maybe one day it could be an issue.”
In response, Mancuso ultimately reiterated the SEC’s argument that S-1 filings are more focused on approving corporate disclosures rather than the agency itself signing up for a business structure via approval.
Failia then asked Mancuso if the SEC couldn’t have told Coinbase, “Hey, you guys need to register as a securities exchange.”
“That was within the SEC’s power to do, right?” she asked.
“I can’t really speak to that,” Mancuso replied.
Related: It’s time for the SEC to crack down on Coinbase and Ripple
The SEC initially charged Coinbase with alleged unregistered securities offerings dating back to 2019.
Coinbase is pushing for an early dismissal of the case on several grounds, with one of their arguments being that the SEC is charging the firm despite the fact that its business structure and planned activities were “exhaustively described” to the agency before Coinbase’s public offering.
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