Coinbase went public in April 2021 after clearing a six-month review. SEC staff bored into its financial reporting and disclosures as well as the company’s belief that its menu of cryptocurrencies shouldn’t be treated as securities, which the SEC regulates. Coinbase’s lawyers argue that by clearing the review, regulators signaled that they “did not think Coinbase’s core business was unlawful.”
But the going-public process isn’t designed to judge whether risks to a company’s future should stop it from selling shares to investors, according to securities lawyers. Other companies whose business models were illegal at the federal or local level have been able to go public, including cannabis firms, gaming businesses and ride-sharing companies. The SEC’s review solely examines how companies disclose those risks to investors in their regulated filings, lawyers said.
Coinbase says its predicament is different from other companies facing legal hazards because “securities law is the SEC’s core competency,” its lawyers wrote last week in their rebuttal letter to the agency. The SEC sent Coinbase an investigative subpoena in December 2020, according to the company’s regulatory filings, when it was in the thick of the agency’s review process.
‘Enforcement 40’ for 2020
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