SEC Green Light to Coinbase Wasn't a Blank Check

The green light given by the US Securities and Exchange Commission (SEC) to Coinbase to go public in April 2021 was seen by many as a validation of its business model. However, according to recent court documents, the SEC made it clear that this approval was not a “blank check” for the company.

Coinbase: An endorsement is not a blessing

Currently, Coinbase and the SEC are face to face in court. In a preliminary hearing Thursday, Judge Katherine Polka Faila of the Court for the Southern District of New York questioned both sides for more than two hours.

The SEC wanted to emphasize that the approval of an S-1 application should not be viewed as a “blessing” of the agency, nor as a certification of the company’s regulatory compliance.

Your Honor, let me clarify that the mere fact that the SEC clears a company to go public does not mean that the agency approves the underlying business or associated business structure, and it does not in any way confirm case that this structure complies with the law“said Peter Mancuso, the attorney for the SEC.

In the United States, companies must submit an S-1 filing to the SEC before they can make an initial public offering (IPO) or go public. This filing provides detailed information on the business structure of the company as well as the intended use of funds from the initial public offering.

The SEC’s pre-clearance of Coinbase’s S-1 filing has sparked heated debate. SEC counsel Peter Mancuso added that approval of an S-1 filing in no way guarantees the validity of all of a company’s activities.

He pointed out that there was no evidence that the SEC had reviewed specific assets or made any specific decisions before reassuring Coinbase that those assets would not be classified as securities later.

The implications of this statement

These statements drew a lot of reactions, especially on Crypto Twitter, where several people, including Gemini co-founder Cameron Winklevoss, highlighted the implications of these remarks.

The central question is to understand why the SEC would allow an allegedly non-compliant company to go public, when its mission is to protect American consumers.

In response, Mancuso reiterated that the primary focus of S-1 filings is on approving corporate disclosures rather than agency validation of corporate structure.

According to the SEC’s position, the main purpose of an S-1 request is not to approve the business structure of the company, but rather to ensure that the company provides full disclosure of its activities. and the use of funds raised from the IPO.

Initially, the SEC accused Coinbase of unregistered securities offerings dating back to 2019. Coinbase is seeking an early dismissal of the case on several fronts. Notably by arguing that the SEC is suing the company despite an “exhaustive” description of its business structure and planned activities, already submitted to the agency before Coinbase’s IPO.

Currently, Coinbase has a strained relationship with the SEC. The crypto exchange platform is even considering suspending its staking services in four US states.

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