SEC Denies Regulator Blessing: Allowing Coinbase to Go Public

The United States Securities and Exchange Commission (SEC) has stated in court that granting a company’s S-1 application to go public does not imply a “blessing” from the agency or confirmation of regulatory compliance.

During the pre-motion hearing of the SEC vs. Coinbase case on July 13, court documents revealed the SEC’s argument that approving Coinbase’s public listing in April 2021 did not imply endorsement of the company’s business structure.

SEC trial counsel Peter Mancuso clarified that allowing a company to go public does not mean the SEC is endorsing its underlying business or confirming compliance with the law. He emphasized that the approval of an S-1 filing does not indicate the SEC’s evaluation of specific assets or guarantee that they won’t later be deemed securities.

These statements prompted discussions on Crypto Twitter, with some questioning why the SEC would permit a potentially noncompliant business to go public, considering its responsibility to protect U.S. consumers. In the United States, companies must submit an S-1 filing to the SEC before listing shares on a national stock exchange, providing details about their business structure and the use of IPO proceeds.

U.S. District Judge Katherine Polk Failia expressed skepticism and raised questions about the SEC’s due diligence and potential warnings regarding noncompliance. While acknowledging that the SEC cannot be expected to possess all knowledge at the time of evaluating a registration statement, she expected the agency to address possible violations of securities laws or uncharted territories regarding the classification of assets.

In response, Mancuso reiterated that S-1 filings primarily focus on approving company disclosures rather than the agency endorsing the business structure through approval.

Judge Failia then questioned whether the SEC could have instructed Coinbase to register as a securities exchange, to which Mancuso responded that he couldn’t comment on that matter.

The SEC initially charged Coinbase for alleged unregistered securities offerings dating back to 2019. Coinbase is seeking early dismissal of the case based on various grounds, including the argument that the SEC is prosecuting the company despite having thoroughly described its business structure and planned activities to the agency prior to its public listing.

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