Coinbase Put in House Hot Seat Hours After SEC Lawsuit Released
Coinbase and Robinhood execs pleaded with Congress to pass comprehensive legislation, and fast
Artwork by Axel Rangel
Just hours after his employer was charged by the SEC for a variety of alleged securities law violations, Coinbase Chief Legal Officer Paul Grewal appeared before the House Agriculture Committee to face questions on crypto market regulation.
Committee members gathered Tuesday afternoon to question a five-witness panel made up of Grewal, other industry members and former regulators. Earlier in the day, lawmakers grilled Commodity Futures Trading Commission Chair Rostin Behnam.
“I do want to address one more elephant in the room,” Committee Chair Glenn Thompson, R-Penn., said during his prepared remarks, referring to the SEC’s complaint against Coinbase.
“While I will not and cannot speak to any of the specific allegations against [Coinbase], I do want to note that this kind of action is exactly why we are holding this hearing here today,” Thompson said. “Regulation by enforcement is not an appropriate way to govern a market, adequately protect customers or promote innovation.”
Grewal joined Robinhood chief legal compliance and corporate affairs officer Dan Gallagher on the hearing’s second panel. Second panel witnesses also include former CFTC Chair Christopher Giancarlo, former CFTC Commissioner and former SEC General Counsel Dan Berkovitz, as well as Walt Lukken, former CFTC acting chair.
Lawmakers refrained from asking about the specific allegations made against Coinbase, but they did touch on topics addressed in the SEC’s complaint, such as token classification and exchange registration.
“Under the current circumstances at the SEC…the invitation has been extended repeatedly to ‘come in and register,’ yet, like Robinhood, when Coinbase has attempted to do just that, talk about how we could register…after months and months of discussion we were simply dismissed,” Grewal said when asked about how Coinbase has attempted to be compliant.
Coinbase went through an extensive vetting process with the SEC before it was allowed to go public via direct listing in 2021.
“I am still digesting the complaint that was served today,” Grewal said. “What I can speak to, in much greater detail, are the many, many interactions we’ve had with the SEC, going back not just months, but several years.”
Rep. John Rose, R-Tenn., mentioned the SEC’s decision to list several additional tokens as securities in the Binance and Coinbase complaints released this week. He asked Gallagher if Robinhood could simply list any of these assets on their SEC-registered broker-dealer platform.
“No,” Gallagher responded. “You would think with a major broker-dealer sitting on the other side of our house, our primary business, we could simply say ‘OK SEC, you’ve just said these are securities, I’m going to go trade them on my broker platform,’ [but] it’s impossible without major regulatory relief and changes in the securities markets.”
Cryptos SEC deems securities on Robinhood
Gallagher expressed similar frustrations to those raised by Grewal, saying Robinhood has spent more than a year trying to appeal to the SEC’s current regulatory structure.
“When Gensler said ‘come in and register,’ we did…We went through a 16-month process with the SEC staff trying to register as a special-purpose broker-dealer and then we were… told in March that that process was over and we would not see any fruits of that effort,” Gallagher said.
All panelists, and most lawmakers, agreed the path forward for crypto, to protect consumers and foster innovation, is for immediate congressional action to address current regulatory gaps.
Without swift action, “the spot market for digital asset commodities will continue to lack federal supervision,” Grewal said. “we will continue to see this innovation, this industry, invest more and more of its resources outside of the US.
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