According to a legal expert, Coinbase’s alleged trading in unregistered securities by the Securities and Exchange Commission could lead to an investigation by the SEC.
Cointelegraph was told by Michael Bacina, an Australian lawyer for digital assets at Piper Alderman that there could be an impact on projects and exchanges regardless of whether the tokens are eventually found to be securities.
“Given that many of the tokens that the SEC called securities in insider trading prosecutions are listed and traded on Coinbase and other platforms, this investigation could have serious, chilling effects for those exchanges as well as the token projects, regardless of whether or not a final finding is that the tokens are securities.”
Bloomberg reported Monday that sources said the SEC is investigating whether the exchange allowed investors from the United States to trade assets that should be registered as securities.
Three people who were “familiar” with the subject said that the Securities and Exchange Enforcement Unit is conducting the probe. This is distinct from the investigation into an alleged insider trading plan.
Bacina stated that Coinbase could face “very substantial fines” or be required to register in the U.S.A as a result.
He also said that they had correctly identified key compliance incompatibilities among blockchain systems and U.S. market regulation, so it might be difficult, or even impossible, for their existing business model to function as a registered and licensed exchange.
“This SEC action wouldn’t seem to encourage pro-active industry engagement. Coinbase has a track record of good faith engagement in regulatory matters and has indicated that the SEC has reviewed their token list criteria.”
Bacina stated that regulations that are fit-for-purpose require consultation from the industry, transparency, and consideration of policy considerations.
He said, “The best way for blockchain and crypto to foster innovation is through transparent engagement between regulators. And clear guidance being issued.”
He stated that a CFTC Commissioner rightly called it “regulation by enforcement” and it wasn’t an ideal way of providing guidance or clarity for a rapidly developing and growing industry.
Coinbase fires back
Coinbase continued to deny that it listed securities.
Paul Grewal, Coinbase’s chief legal officer, reiterated to his followers on July 25 that he was “confident” about the platform’s “rigorous diligence processes” that keep securities off its platform.
It’s something I am happy to repeat: We are confident that our rigorous diligence, which the SEC has already reviewed, keeps securities off our platform. We look forward to engaging the SEC about the matter. A refresher: https://t.co/SaacvrZEiU
— paulgrewal.eth, July 26, 2022 (@iampaulgrewal).
He also shared a blog post titled “Coinbase doesn’t list securities” that he wrote. End of Story” was published for the first time on July 22.
Related: Cathie Wood sells Coinbase stock amid insider trading allegations
According to data from NASDAQ, Monday’s news of the investigation coincided with a drop in Coinbase Global Inc share price. It fell 21% overnight.
Cathie Wood’s investment company Ark Investment Management sold a huge amount of shares to the crypto exchange on Tuesday. This was a total of just over $75million based upon Tuesday’s closing prices.
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