The recent lawsuit against Coinbase from the Securities and Exchange Commission (SEC) raised eyebrows as the regulator had allowed the company to go public earlier this year. Though many find this lawsuit contradictory, it is essential to understand that the SEC does not approve direct listings per se but rather ensures that a company has met specific requirements to proceed.
In April 2021, Coinbase received confirmation that the SEC declared effective its registration on Form S-1, related to a proposed public direct listing of its Class A common stock. It is now being sued by the SEC for allegedly operating as an unregistered exchange since at least 2019. Critics argue that the SEC should not have permitted the public listing if there were existing concerns about the company’s operations.
However, Joe Carlasare, partner at law firm Amundsen Davis LLC, points out that the SEC’s decision to allow the listing was made by a different division within the regulator. This division focuses on disclosure rather than evaluating the legality of the company’s operations. Consequently, the SEC approved the registration statement, indicating that Coinbase had disclosed all required information and met relevant requirements to be a publicly traded company.
Bruce Fenton, managing director at blockchain startup Chainstone Labs, supports Carlasare’s argument, stating that the SEC’s approval of a public offering “is not passing merit on the business.” The regulator merely confirms that a company has fulfilled its disclosure obligations and met the necessary criteria to go public.
It is worth noting that Gary Gensler became the SEC’s chair in the same month that Coinbase went public, meaning that the decision to allow the listing predates his appointment. Additionally, Coinbase expanded the number of cryptocurrencies listed on its exchange after going public, which may have caught the attention of regulators.
While some may still see the SEC’s lawsuit against Coinbase as hypocritical or contradictory, it is essential to understand that the approval of a public listing is not an endorsement of the company’s business practices. Furthermore, the approval is not a long-term guarantee that any future changes in strategy would also receive regulatory approval.