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

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. Coin is down 10% on the news. We have Paul Greywall 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. Bankless Nation, I would love to introduce you to Paul Greywall, 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 back to Bankless.

Hey, David. It's great to be back on. Thanks for having me.

Paul, so today's the day, huh?

Well, uh, a lot's happened today for sure. Um, there has been um, you know, no shortage of activity

over here at Coinbase. Um, 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 uh a number of violations of federal securities laws.

You know, 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,

uh 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 it concern. So, in a certain way, it was a moment of great relief more than anything else.

Yeah, so that answers 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 be today. The timing of this is interesting because Paul, you were a little bit busy today. Uh what 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 of the 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 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 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 before the House Agriculture Committee, which is rather than develop and issue 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 the juxtaposition could not be clearer. 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 US 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 Gansler 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 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 Robinhood, Dan Gallagher, made a very similar point in that, like Coinbase, Robinhood 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 filed our petition for rulemaking 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 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, um, the SEC chair is extremely intelligent,

extremely sophisticated, and should never ever be underestimated.

I found it very um 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 uh testifying but before the Congress. So the contrast could not be stark 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 that it 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 uh in on crypto Twitter, like Solana, Matic, Cardano, tokens that I hold, tokens that many bankless listeners hold. Is there any do is there any insight as to how the SEC picked this set of tokens?

Well, I have very little insight for a couple of reasons, David. One is um the complaint

uh does not provide much, if any, detail on why and how these assets, but not others, somehow qualify as securities under the Howe test and federal law.

It's also quite interesting, David, that um despite the chair's 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 complaint that was filed against us, or as I understand it, against Binance. 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.

Binance has, 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 um suggests it's really, really challenging to understand why

the leadership of the SEC is so confident in this legal analysis across a whole range of these issues.

Yeah, you 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 when the SEC declared Ripple XRP a 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 know I know you guys have only had so much time to think about this, but uh is it what's your guys' approach to this?

Well, we have only had just a very little um amount of time to to fully analyze these issues. But I will say this

um the um

You know, the decision to list or delist 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 the listing these assets is appropriate 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 support of this initial approach that the House Agriculture Committee and the House Financial Services Committee together have.

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, MADIC, or any of the other assets that the SEC has seemingly arbitrarily charged as securities.

We're eager to get to a regime where

strong standards are put in place, strong consumer protections will apply, but there's a pathway for not just the Coinbase.

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 or as a commodity under a very different set of rules.

So I'm not sure if you saw it, Paul, but the SEC just moved for um a TRO to freeze Binance's assets. Um 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

Well, I did see a word across my screen about an application for a temporary restraining order that would allow the government to seize certain assets in the Binance case. Right.