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San Francisco-based cryptocurrency exchange Coinbase is under fire from the U.S. Securities and Exchange Commission, despite the company’s attempts to seek clarity from the regulator, according to CEO Brian Armstrong.
In an exclusive interview with Decrypt, Armstrong said Coinbase has met with the SEC 30 times over the last 18 months. "We haven't really gotten any feedback from them about which assets they believe are securities and which they believe are not," he said, "other than Bitcoin.”
Citing “strong legal arguments” and outside legal opinions on assets listed on the platform, Armstrong said that Coinbase has asked the SEC for feedback several times throughout those meetings—to no avail.
“We didn't get any feedback; all we got was a Wells Notice,” Armstrong said.
A Wells Notice, which Coinbase received in March, is a letter from the SEC that notifies the recipient that the Commission intends to bring forth charges. Three months later, it did.
In a June 6 lawsuit, the SEC charged Coinbase with operating an unlicensed securities exchange and stated that it considered several crypto assets listed on Coinbase to be unlicensed securities under U.S. federal law, including Solana, Polygon, and Cardano—a designation that the projects have pushed back against in more or less colorful terms. Coinbase, too, refutes the charges, arguing that tokens listed on the exchange don’t qualify as securities under criteria for so-called “investment contracts.”
The crypto "turf war"
It's this type of "regulation by enforcement" environment and the lack of clear guidance that has pushed Coinbase to look beyond the U.S. to do business, according to the company.
An ongoing “turf war” between the SEC and the Commodity Futures Trading Commission (CFTC) is creating regulatory challenges for all crypto firms, Armstrong said. He compared the situation in the U.S. with the UK, where he this week attended a government investment summit.
“The [Financial Conduct Authority] has had really productive engagements with us over there,” he said. “It’s really nice to have just one federal regulator for both commodities and securities, because they don't have the issue that we have in the U.S. where the CFTC and the SEC are sometimes having a bit of a turf war over who regulates which assets, and it's kind of a jump ball between them sometimes.”
"It's a total non-issue in the UK," he said, adding that, “The number one thing we look for in terms of international expansion and investment is regulatory clarity.”
Armstrong said that the UK government under Prime Minister Rishi Sunak has been “very pro crypto,” adding that, “everybody has really said that they want the UK to be a crypto and Web3 hub.” That, he said, has brought new investment to the UK, noting that Andreesen Horowitz recently opened a London office. Coinbase, he said, has created around 200 “high tech, highly-paid” jobs in the country. “We’d like to do more,” he added.
The situation in the UK contrasts with that in the U.S., where regulation by enforcement prevails, according to Armstrong. “The environment has just been a lot less clear,” he said.
If the firm can’t get clarity from the SEC, he said, “we need to avail ourselves of the court to go get case law created.” Armstrong said that he’s also hoping that “Congress acts and passes new legislation,” referencing two bills currently working their way through the House.
But lawmakers don't necessarily agree with Armstrong's depiction of a regulatory turf war. Some even see it as a deflection.
In a joint hearing earlier this year, U.S. Rep. Stephen Lynch (D-MA) suggested that talk of a "turf war" between the SEC and CFTC was an "industry-fueled" narrative, and that crypto industry concerns around regulatory ambiguity are actually “masked non-compliance with existing laws.”
Edited by Stacy Elliott.