SEC vs. Coinbase with Coinbase's Chief Legal Officer, Paul Grewal

Transcript

bankless Nation War has been declared on crypto today the SEC announced charges against coinbase for operating an unregistered Securities Exchange broker and clearing agency a coin is down 10 on the news we have Paul Grewal on the show we had him on six weeks ago when coinbase was originally given a Wells notice from the SEC now that day has come we're bringing him back onto the show now that the lawsuit has been filed and we're going to get to him in just a moment but first a moment to talk about talk to these fantastic sponsors that make the show possible Kraken Pro has easily become the best crypto trading platform in the industry the place I use to check the charts and the crypto prices even when I'm not looking to place a trade on Kraken Pro you'll have access to Advanced charting tools real-time Market data and

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play and connect at immutable.com bankless Nation I would love to introduce you to Paul grewalt the chief legal officer at coinbase and while I'm sure Paul is a great guy whenever he is on the show it's usually not for a great reason Paul welcome to app back to bankless hey David it's great to be back on thanks for having me Paul so today's the day huh well A lot's happened today for sure um there has been um you know no shortage of activity over here at coinbase but in a lot of ways this was a day we knew that would come and so we've been preparing for it for a very very long time yeah so the SEC served a Wells notice to coinbase six weeks ago that's that's when we last talked uh today's the day that that

Wells notice finally came into a fruition for a suit uh is there anything new here like this is you guys were prepared for this all along is there anything that's a surprise today for you guys no I I don't think there was much uh in the substance of the complaint that was a surprise at all um you know the SEC did charge coinbase with a number of violations of federal Securities laws you know the the the honest reaction I had when I first got a copy of the complaint this morning uh David was finally finally I now at least know what it is that we are accused of because as you and I talked about six weeks ago coinbase has been operating in the dark uh largely because the SEC has refused to tell us until this morning exactly

what products and services give a concern so in a certain way it was a moment of great relief more than anything else yeah so that answer is actually my next question about like when did you know this action was going to be filed so it sounds like you found out today that this lawsuit was going to to be today the timing of this is interesting because Paul you were a little bit busy today what was up with the timing of the of the SEC with the choice to drop this lawsuit today well you say the timing is interesting David I'll say it's curious I'll leave it at that the fact matter is I learned about this complaint about I don't know 45 minutes before I was scheduled to walk over to Capitol Hill and testify before the house agriculture committee on a draft bill that was

released last Friday so um yeah it's um interesting curious pick your word that the SEC chose this morning of all days uh to file the lawsuit yeah and this draft bill is a bill that would provide Clarity and regulation to the industry that we would much like to have Clarity and regulation for and so it's just perhaps interesting that now is one of the biggest news's and biggest pieces of news that the crypto regulatory industry has in the last like year or so um okay yeah the the bill is actually quite interesting and quite important it will provide for the very first time a real Market structure for digital assets including both digital asset Commodities and digital asset Securities it will

provide a pathway for registration serious oversight real protection for consumers and investors a lot of the things that we have been clamoring for for many months if not many years in the industry and if anything David this morning's lawsuit only proved the point that we were discussing uh before the house Agri culture committee which is rather than develop an issues reasonable rules that everybody can live with in order to bring crypto inside the regulatory perimeter one part of the federal government has chosen a very different path a path that relies entirely on a regulation by enforcement campaign yeah the juxtaposition could not be clear the the law in question

would provide exactly what we were asking for in the crypto industry to prevent exactly from what is happening with Gary Gensler and the SEC and this lawsuit with uh with coinbase I want to read out a tweet that is circling around crypto Twitter because um I think at this point we're Beyond reasoning with the SEC at least that's how I feel personally so this tweet reads let's be clear the SEC complaint doesn't mention this but there's currently no way for a platform like coinbase to register as a Securities Exchange broker or clearing agent that's why they coinbase has been begging the SEC for years to give them a path to compliance instead of working constructively with U.S market participants to come up with a working model and knowing that Congress is actively considering legislation to do

the same the SEC sues no allegations of fraud just accusing coinbase of failing to do the impossible failing to do the impossible from your I don't know to what degree you have the freedom to speak do they Gary ganzer knows this is impossible right and so my question is like what's the motivation what what is the end game here because they're they're putting coinbase in a rock at a hard place they're saying these commonly listed assets that every exchange has are securities there seems to be a dead end here what's your perspective on the actual like what does what does the SEC want judging by the actions well I can't I can't uh look inside of anybody's heart or head and know exactly what they're feeling or thinking but what I

can say is that um you're absolutely right David as things currently stand today not only coinbase but no uh uh operating exchange or other intermediary can register with the SEC in a way that would allow it to list and trade registered digital asset Securities and that's not just me saying this as the chief legal officer of coinbase as it turns out earlier today in the uh in the testimony that was presented at the house agriculture Committee hearing the chief legal officer of Robin Hood Dan Gallagher made a very similar point in that like coinbase Robin Hood also has registered broker dealers but like coinbase it has nothing to list or trade on them because there's no way for issuers to

practically register under the current regime it's one of the reasons why we file our petition for rulemaking uh you know back in July and it's one of the reasons we've been banging on the sec's door to work with it to develop a sensible path to registration that will work for everyone including investors and consumers what I'm confused about Paul is why Gary has so much confidence they already are going after xrp which is its own Beast of of a fight but now they've picked they've picked fights with coinbase and binance the two largest crypto exchanges in the industry what what trick does Gary have up its sleeve like why does he feel so confident that he can do this

well as I've said all along the SEC chair is extremely intelligent extremely sophisticated and should never ever be underestimated I found it very interesting today however that at least four or five times during the hearing that I attended and testified at the chair of the cftc actually presented his own testimony earlier in the proceedings and at least four or five times by my count chair Benham the chair of the cftc repeated over and over again that ethereum eth is a commodity not a security now you you follow these issues closely enough to know uh David that chair Gensler has refused to answer that

question even when he himself has been testifying before the Congress so the contrast could not be stuck between the rest of the federal government many if not all of the states almost all of the other countries that have taken a serious look at crypto regulation and this one part of this one branch that seems to have a very different attitude and approach to sensible regulation so with the wells notice uh that was around six weeks ago the coinbase said that the SEC refused to say which tokens were Securities um so one of the things that has happened in the last two days with this binance and coinbase suit is that tokens have actually been named specific tokens like the the commonly discussed tokens that are in on crypto Twitter like

Solana Matic cardano tokens that I hold tokens that many bankless listeners hold is there any is there any insight as to how the SEC picked this set of tokens well there's I have I have very little insight for a couple of reasons David one is uh the complaint does not provide much if any detail on why and how these assets but not others somehow qualify as Securities under the Howie test and federal law it's also quite interesting David that despite the chairs um insistence that ethereum might in fact be a security notwithstanding what everyone else seems to have concluded ethereum was not charged in this particular plate that

was filed against us or as I understand it against Finance here's the other thing that's really really interesting David about the assets that the SEC chose to accuse at least in our case they didn't charge xrp historically they didn't charge xrp in the binance complaint Finance says at least as I understand it has listed xrp for some time as well so it's really really um challenging I'll pick my words carefully to understand the rationale that the SEC is relying upon which means which to my mind suggests it's really really challenging to understand why um the leadership of the SEC is so confident in this legal analysis across a whole range of these issues yeah you say challenging I like the word chaotic how can we we can't pattern match when

the SEC is going after Ripple deeming it a security but leaves Ripple out in an exchange that is currently listing Ripple uh talking about binance of course um so so when the SEC declared Ripple xrps security coinbase and most other exchanges delisted it um now in this this particular suit there's many more tokens and all of these tokens also have much more public support than Ripple ever did uh will coinbase be delisting these well is there a strategy here like I I know you guys have only had so much time to think about this but uh is it what's your guys's approach to this well we have only had just a a very little amount of time to to fully analyze these issues but I will say this

um the um you know the decision to list or de-list is one that we continuously engage in we always consider new facts and circumstances and so as we have before and as we will continue to do going forward we will take this new information and again once again evaluate whether or not um the the listing these assets is appropriate um as non-securities here's the thing though David I think that sometimes gets lost we want to be able to list assets which qualify as Securities it's one of the reasons why we've been banging on the sec's door asking for rules for many months now it's also one of the reasons why I testified today in uh in in in support of this initial approach that the house agriculture committee and the house Financial Services committee

together have uh proposed it goes a certain distance I would argue a long distance towards addressing so many of the fundamental challenges that all of us have whether you're talking about xrp Matic or any of the other assets that the SEC has seemingly arbitrarily charged as Securities um we're eager to to get to a a regime where strong standards are put in place strong consumer protections will apply but there's a pathway for not just the coinbases of the world but for issuers and others in the crypto economy to understand that even if an asset May initially be a security for one reason or another it can evolve over time it can decentralize in a way that makes it plain that it should be treated as a

non-security as a commodity under a very different set of rules so I'm not sure if you saw Paul but the SEC just moved for um a tro to freeze binance's assets um uh binance us that is uh hopefully hopefully not but I'm wondering if if there's any worry that they might do the same thing for coinbase and if coinbase is prepared for that well I I did see a word across my screen about an application for a temporary restraining order that would allow the government to see certain Assets in the binance case we have not been uh served with any such notice and I'm confident that we won't because the standards that would allow um the the SEC to make that request your application simply don't apply in our

case I can't the binance case but uh I'm confident that we will have our full and fair opportunity to defend ourselves in court in our case and we intend to take that opportunity up so Paul what are the next steps here is there do we have a date does coinbase have a date with Gary in court like how do what can we expect in the next coming days weeks and months well the the the the the the you know the feeling of relief I I mentioned very uh at the very beginning of this podcast David actually went beyond just knowing finally what um products are being accused it's also a feeling of relief that we now along with the SEC are both parties in a court proceeding overseen by a federal judge and that means that a federal judge a

neutral a respected of third party is going to have the final say on how this case proceeds what claims have Merit what claims do not and and frankly whether the SEC has been following the law in its arbitrary campaign of enforcement going on how many many months now so um as to how quickly this will all proceed that is a ultimately a decision for the court and of course we will respect whatever schedule the court says I think though that you and other listeners can look to other cases that have been brought by the SEC over the last couple years and understand that these cases can take not just many months but in some cases many years and so there is not likely to be a very quick resolution in at least our case

because we intend to defend ourselves it's all the more reason why David that we believe so strongly that there needs to be sensible rules in place there needs to be a legislative framework adopted so that these issues get vetted in an efficient low-cost High credibility manner as opposed to one-off cases brought in court that take months or years to reach their conclusion well call me an optimist Paul but if if you're telling me that this this case about ver which of these assets are crypto Securities if this takes years I'm optimistic that we're actually going to be able to get legislation passed in that time if that is true how would that impact the actual court case well I'm

I'm hopeful as well I have to say that one of the things that struck me about today's hearing David was that it was serious the Congress men and women asked probing questions it's clear they've been giving serious thought to these very challenging issues they seemed interested very interested and here's the other thing it was bipartisan I thought the care that came from one side of the Deus was matched by the care from the other and it's also clear from the chairs comments chair Thompson and chair Patrick McHenry over the house financial services that they intend to move forward on this very very quickly so I'm very hopeful that we're going to see progress here as to how quickly and how much progress well that's that Still

Remains to be seen and in the meantime we're going to defend ourselves in court we're very confident that uh any Court looking at the issues raised in the sec's complaint is going to reach the same conclusion as we have the SEC is dead wrong they've misapplied the law and that these claims have no merit well Paul I think I can speak for the entire crypto industry when I when I say coinbase has our support and thank you for for fighting the fight in in court uh give us the Silver Lining here what's the light that you see at the end of the tunnel what can we be excited about even if this does take a very long amount of time well I can understand why why why some listeners may be discouraged by uh these recent events but if you just take a half a step back you'll see that

you've got now Clarity emerging all over the world Regulators in London in Singapore um in all kinds of countries adopting serious strict Frameworks that impose real burdens on on on crypto developers and and exchanges but recognize that crypto is an important asset class and critically the crypto is here to stay that's something I think we should be enthusiastic about here in the United States I think it's also important to be optimistic and excited that we have the Congress engaging with these issues in a very serious serious way and at least based on today's Hearing in a very bipartisan way that gives me cause for Hope but the biggest reason why I'm ultimately hopeful here David is that um you know the crypto developers out there building

interesting new networks and use cases and utilities their work continues unabated I don't think there's anything that happened today or in in any of these recent matters that should discourage anyone from continuing to you know put in the hard work develop great products and services and continue to grow this amazing community what can bankless listeners what can people sitting in their homes listening to this or watching this on YouTube how can we help how can we join the fight so the number one thing you and your listeners can do is to make your voices heard the the the folks in the Congress the folks in the executive branch they all understand one thing which is what their voters tell them and so

um raising one's voice appropriately respectfully but firmly is very very important and that goes beyond just a retweet that goes just beyond a like um we have started something at coinbase called crypto 435 the 435 refers to the 435 congressional districts in this country if you go to our Twitter uh handle you'll see a pin tweet that lays out all the ways in which listeners can get involved crypto 435 teaches people how to connect with their elected officials it speaks to um all the ways in which to advocate for cryptos and sensible crypto regulation this is an important opportunity an important time for everybody to get involved well Paul thank you so much for coming

right out of DC into this live stream I really really appreciate it we will put that that pinned tweet into the link in the show notes uh Paul there is this uh promo video that coinbase dropped today so I'm gonna say goodbye to you and then we're gonna play this video so bankless nation and stick around um Paul I really appreciate you and and thank you for for fighting uh fighting the powers that be for things that I deem to be uh authoritarian and top down and just not uh resembling crypto values thank you David I appreciate it you know the deal versus disclaimers crypto is risky Bitcoin is risky ether is risky trading illegal crypto Securities is definitely risky but sometimes you can't really help it uh you can lose what you put in but we are headed west this is the frontier it's

not for everyone but we are glad you are with us on this bankless journey now let's watch this video foreign