Coinbase Warns SEC It Will ‘Exhaust All Avenues’ If Sued

(Bloomberg) — Coinbase Global Inc. is making a last-ditch effort to dissuade the SEC from suing the firm, including sending a not-so-subtle reminder that it won’t be easy to take down.

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In a lengthy response to the Securities and Exchange Commission’s March Wells notice — which signaled the agency’s plans to bring an enforcement action — the company said that it would be “a well-resourced adversary that will necessarily be motivated to exhaust all avenues.”

Still, the company would like to avoid the lawsuit altogether, according to Chief Legal Officer Paul Grewal. “We didn’t pick this fight,” he said in an interview.

A representative for the SEC, when asked about the company’s response, said the agency generally doesn’t acknowledge the existence or non-existence of investigations unless or until it files civil charges.

The SEC and Coinbase have long been at odds. The regulator, led by Chair Gary Gensler, has said most digital assets are securities and that existing rules are clear — crypto firms just need to follow them. He’s also called out crypto exchanges that play multiple roles, simultaneously acting as exchanges, brokerages and clearing agencies.

“When a platform combines these functions, that creates conflicts of interest that undermine our time-tested investor protections,” Gensler said in a video posted to Twitter Thursday.

Coinbase, meanwhile, has argued that none of the tokens it lists are securities. It has also claimed that the SEC isn’t making a real effort to engage with the industry and that it should write new regulations to make clear how securities laws apply to digital assets.

Existential Threat

Tensions between the two reached new heights after Coinbase last month received the SEC’s Wells notice, in which the agency identified a range of potential securities law violations, including that the firm allegedly operates an unregistered exchange, clearing agency and broker — similar to accusations recently levied against crypto platform Bittrex Inc. Such an enforcement action could pose an existential threat for Coinbase and its current way of doing business.

Instead of waiting for litigation, the crypto company took to the offensive with a lawsuit earlier this week, seeking a court’s assistance in compelling the SEC to respond to a rulemaking petition it submitted last year.

READ MORE: Coinbase Takes Jab at SEC With Lawsuit Over Rule Petition (2)

Still, it appears likely that the regulator will pursue its own action. Coinbase, in its response to the Wells notice, warned that litigation would put the agency’s own practices under a microscope — including, the company claimed, its refusal to allow Coinbase to use an alternative trading-system license it had acquired to register.

The company said the SEC appears to be using the threat of legal action to pressure it to register as a national securities exchange and clearing agency — “potentially requiring Coinbase to jettison its entire customer-facing business and overhaul its public company governance structure.”

–With assistance from Yueqi Yang and Olga Kharif.

(Updates with SEC response in fourth paragraph.)