Sep 8, 2023 - Economy

How the largest U.S. crypto exchange is brawling with the SEC

Animated gif of volume icon getting progressively louder

Illustration: Sarah Grillo/Axios

When the Securities and Exchange Commission comes knocking, most companies clam up and hunker down, but that's not the way Coinbase Global is doing it.

Why it matters: The crypto exchange's unusually loud strategy could determine the fate of its legal battle with the regulator — a prize fight being watched as a bellwether for the fate of crypto in the U.S.

Zoom in: Coinbase has been vocal about run-ins with its primary regulator in blogs, tweets, podcasts and media interviews — offering up subpoenas, court filings (theirs and their adversary's) and legal analysis in near real time to the public.

  • Lawyers would typically advise their clients against such display.

What they're saying: "For many of us [attorneys], when asked about a pending investigation, the response is 'no comment' or complete silence," Paul Grewal, Coinbase's chief legal officer, tells Axios.

  • "I give a lot of credit to our CEO and our board. Very early on we all saw that this was a very different kind of investigation that the SEC was running."
  • "In terms of how we thought about public messaging, we needed to start with first principles to basically reconsider anything and everything we had been taught about how to engage."

Details: When exactly Coinbase decided to do this — Grewal demurred. But it's evident the company has held this posture for at least two years.

  • Brian Armstrong, chief of Coinbase, took to Twitter in September 2021 when the SEC threatened to sue over a product called Lend that would allow the exchange's retail customers to borrow funds to trade; there was also a blog post.
  • When the SEC called Coinbase this past March to say it was considering enforcement action, Armstrong and Grewal responded in a YouTube video.
  • Separately, Coinbase started an advocacy campaign called Stand With Crypto seeking to mobilize public support for crypto rules.

Between the lines: "There are limited circumstances to have a proactive, public-facing media strategy," Junaid Zubairi, a lawyer at Vedder Price specializing in government investigations and white-collar defense, tells Axios.

  • In situations where there's no precedent or case law, a company may want to drum up support, Zubairi says.
  • "There are advantages in speaking out and creating a public issue, so others can be aware and support the defense."

What we're watching: The SEC ultimately sued Coinbase in June.

  • The case reads as potentially existential for the company. In that light, it could be that its executives see no other choice than to come out swinging.

Go deeper: SEC chair Gary Gensler's court losses are piling up in crypto

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