SEC lawsuit shines light on Coinbase management

SEC lawsuit shines light on Coinbase management

Kevin O’Leary, a venture capitalist who spoke to Cointelegraph recently, criticized Coinbase’s approach to the current regulatory climate.


Join us on Social Networks

The United States Securities and Exchange Commission lawsuit filed on June 6, against Coinbase Global raises questions about how the crypto exchange is managing the ongoing crypto crackdown.

Kevin O’Leary , a venture capitalist who spoke to Cointelegraph recently, criticized Coinbase’s strategy for addressing the current regulatory climate. The serial entrepreneur said that Coinbase’s 17.4% stock price drop last week was due to “its market cap being decimated” by the SEC lawsuit. O’Leary continued:

I would say that at this point if you are an investor in the company, it’s time to make changes. This is not a good strategy. […] The management team is not something I’m optimistic about. […] “I think investors have had enough of this.”

Coinbase spent months advocating for more clear crypto regulations in the U.S. despite increasing regulatory scrutiny. Coinbase CEO Brian Armstrong recently told The Wall Street Journal that the exchange had met with the SEC more than 30 times over the last year, but received no feedback.

Coinbase stock has declined sharply in June. Source: Yahoo Finance

Mark Kornfeld is a securities and regulation attorney who told Cointelegraph how private claims for alleged damages are often based on the fact that there was a drop in stock prices due to regulatory action, like SEC proceedings against Coinbase. This applies as long as the claim contains materiality or misleading statements or omissions. Kornfeld said that the devil is always in the details when it comes to proving what has been alleged.

According to Roland Chase, a corporate and securities attorney, the legal claims of harmed investors could range from “whether or not Coinbase’s legal analysis is adequate every time it considers listing a crypto-asset” to its disclosure of risk factors to investors.

Chase added, “If the [token listing analysis] was not adequate and management was aware of this — or recklessly failed to know it — there could be a claim under federal securities laws against Coinbase and their management.”

Coinbase says it has reviewed more than a thousand assets. 90% of them were rejected. “We were concerned that some of the assets could be securities, or had other issues with them.” Armstrong told WSJ that “we really only list a small, conservative number of assets.”

In terms of its disclosures to investors, Coinbase’s 2021 filing with regulators seemed to anticipate the challenges it would face in the future. The filing’s risks section reads as follows:

The status of a particular crypto asset as a “security” in any jurisdiction relevant to us is uncertain. If we are unable properly to characterize a cryptocurrency asset, we could be subjected to regulatory scrutiny, investigation, fines and other penalties that may negatively affect our business, operational results and financial situation.

The exchange could lose a lot of money if it has to spend years in court fighting regulators. Ripple has spent more than $200 million defending the SEC lawsuit against XRP ( XRP), which is currently litigating over its alleged security status.

Cointelegraph contacted Coinbase, but received no response.

Magazine: Crypto regulation – Does SEC chair Gary Gensler have final say?