Former SEC Enforcement Chief: Coinbase’s Arguments ‘a Surefire Loser’ and Possibly Criminal

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According to John Reed Stark, crypto exchange Coinbase’s assertions that its business activities were endorsed by the U.S. Securities and Exchange Commission (SEC) when it approved its initial public offering are “a surefire loser.” According to Stark, the SEC’s approval of Coinbase’s registration statement was done to ensure the latter had made “proper disclosures in their application.”

SEC Not Constrained by Any Doctrine

John Reed Stark, a former chief of the U.S. Securities and Exchange Commission (SEC) Office of Internet Enforcement, has said the arguments that Coinbase’s business activities were endorsed by the commission when it approved its initial public offering (IPO) are “a surefire loser.” Stark also said the assertion that Coinbase has “some sort of regulatory safe harbor” and that the SEC is constrained by some sort of doctrine “has no basis in law or in fact.”

The remarks by Stark came just days after Coinbase chose to publicly disclose its response to the Wells notice it received from the SEC back in March. As reported by Bitcoin.com News, Coinbase made clear its opposition to the SEC’s enforcement actions. Coinbase also implied in its response that the SEC had in fact greenlighted its core business when it allowed the IPO to proceed. The company went public in April, 2021.

Some argue that when the SEC approved Coinbase’s IPO, the SEC also approved Coinbase’s business. What a crock and possibly a criminal offense. Yes, you read that correctly — a criminal offense. Having served as Chief of the SEC Office of Internet Enforcement for 11 years, IMHO,… pic.twitter.com/aIQXgCRVNb

— John Reed Stark (@JohnReedStark) May 1, 2023

However, in his May 1 Twitter thread, Stark, who worked for eleven years as an SEC chief, assailed the assertion that the commission’s approval of Coinbase’s registration statement amounted to an endorsement of the crypto exchange’s activities. According to Stark, the SEC’s approval of Coinbase’s registration statement was done to ensure the latter had made “proper disclosures in their application.”

‘No Approval Clause’

To further support this argument, Stark pointed to regulations which compel companies seeking to raise funds from the public to insert a “No Approval Clause” in their respective prospectuses. The intention of this clause is to inform prospective investors that regulators that include the SEC have neither approved nor disapproved securities being offered.

The former SEC enforcement chief also shared more links which seemingly support the argument that the Commission is not being constrained by some “sort of regulatory estoppel.”

Meanwhile, Stark also suggested in his tweet that Coinbase’s own Form S1 Registration Statement under the Securities Act of 1933 proved that the crypto exchange was aware that its business activities had the potential to cause problems. He said:

Finally, Coinbase’s Form S1 Registration Statement under the Securities Act of 1933, the form that Coinbase filled out to become a public company and the form that the SEC reviewed, disclosed that there is regulatory uncertainty regarding the status of their activities and that Coinbase could be subject to a litany of civil, criminal, and administrative fines, penalties, orders and actions (which is exactly what is happening right now).

Stark ended the long tweet by reiterating that the “no approval clause” was a sufficient warning to Coinbase executives who may face potential jail time should the crypto exchange lose its fight against the SEC.

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