Court Rules SEC Could Have Warned Coinbase of Securities Law Violation Before Public Listing

The U.S. Securities and Exchange Commission (SEC) may have warned Coinbase it was breaking the law before clearing its registration, according to a federal court in New York.

The SEC sued Coinbase, a Nasdaq-listed company, back in June, claiming that it had traded unregistered securities.

At the pretrial hearing, SEC attorney Peter Mancuso testified that the commission’s acceptance of Coinbase’s S-1 application to do an initial public offering (IPO) in no way indicated that it endorsed Coinbase’s operations generally.

The SEC’s approval of a company’s initial public offering does not constitute an endorsement of the company’s underlying business or business structure or a determination that the structure complies with applicable law.

There is no proof that the SEC investigated certain assets and made particular conclusions before assuring Coinbase that the tokens were not securities.

Katherine Polk Failla, a federal judge, has expressed confusion as to why the SEC didn’t forewarn Coinbase of potential regulatory ambiguities. She claims that the government should have provided the exchange with guidance or warning before to approving the public listing.

“I’m not arguing that the SEC has to have perfect knowledge of all there is to know about a company before reviewing its registration statement. My ignorance led me to believe that the commission was investigating Coinbase’s actions and would ultimately advise the company to stop what it was doing. You should know that this is illegal under securities regulations, or that you’re venturing into fascinating uncharted ground about whether the assets on your platform are securities.”

Since the SEC didn’t issue any warnings to Coinbase before its IPO, the court agrees that the cryptocurrency exchange had every right to believe it was in the clear.

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