Coinbase Chief Legal Officer Paul Grewal strongly criticized the US Securities and Exchange Commission (SEC) on May 14 regarding the Debt Box case. He also called on other crypto exchanges to query the SEC’s previous actions, considering the far-reaching implications for the sector.
Coinbase Legal Officer Questions SEC “Wells Notice” Strategy
In a thread on X, the Coinbase legal officer stated that the SEC had deviated from its typical Wells Notice process in its case against Debt Box, a cryptocurrency company it sued in 2023.
In a brief to avoid dismissal of its case against Debt Box with prejudice, @SECGov includes a remarkable admission that it did not follow its own typical Wells process when it refused to tell us what assets would be charged as securities: “The Wells process is designed to aid…
— paulgrewal.eth (@iampaulgrewal) May 13, 2024
A Wells Notice is a formal notice from the SEC sent to a respondent informing them of the substance of the charges the regulator intends to bring against them.
According to Grewal, the Wells process is meant to aid the charging decision for a potential defendant, but Coinbase did not receive such a thorough explanation in its ongoing case with the SEC. The departure from the usual procedure raised questions about the validity of the SEC’s claims.
Given his strong criticism, Grewal called on other popular crypto exchanges that received Wells notices from the SEC –Ripple, Binance, Kraken, Robinhood, and Uniswap – to stand against what he called “gaslighting.”
He criticized the SEC for its lack of clarity and insufficient explanation of charges against these exchanges, suggesting that the regulator’s actions may be inconsistent and arbitrary.
The SEC filed a lawsuit against Coinbase in June 2023, alleging the company engaged in the unregistered offering and sale of securities since 2019. The legal dispute is ongoing, with the SEC recently requesting the court reject Coinbase’s appeal against the agency’s lawsuit.
US Court and Financial Actors Slams SEC’s Abuse Of Power
Judge Robert Shelby of the federal district court of Utah reportedly condemned the SEC for what he called a “gross abuse” of power in accusing Debt Box of defrauding investors of over $49 million.
With the ruling now in from Judge Shelby that the @SECGov intentionally engaged in “gross misuse of power” in @TheDebtBox case, will Congress do anything? Will Democrats join Republican lawmakers in calling for SEC reform? @SenLummis @JDVance1 @SenatorHagerty https://t.co/pjfBGRtBd5
— Eleanor Terrett (@EleanorTerrett) March 19, 2024
The Judge also remarked that the SEC’s case against Debt Box was “marred by false statements and misrepresentations.” This resulted in the resignation of two SEC attorneys, as they admitted to errors but urged the judge to avoid formal punishment.
🚨BREAKING 🚨
TWO SEC ATTORNEYS HAVE BEEN FORCED TO RESIGN AFTER A “GROSS ABUSE OF POWER” IN THEIR CASE AGAINST DEBTBOX 😳
THE SEC UNDER GARY GENSLER HAS BEEN A DISASTER, FACING MASSIVE PUSH BACK FROM THE COURTS 💯
GARY GENSLER SHOULD BE THE NEXT OUT THE DOOR ✅#XRP #RIPPLE pic.twitter.com/aD0I1RPDpQ
— Documenting Ripple 📚📜 (@RippleArchive) April 22, 2024
These events have sparked discussions about the SEC’s alleged overreach in its enforcement actions against crypto companies. When trading app Robinhood received a Wells notice from the SEC earlier this month for alleged securities violations, Jake Chervinsk, Variant Fund’s Chief Legal Officer, pointed out that the US regulatory agency is abusing the Wells process as a “scare tactic.”
The SEC just sent a Wells notice to Robinhood.
The number they’ve sent about crypto in recent months is astonishing. It’s hard to imagine that they would (or could) bring so many enforcement actions at once.
It seems like they’re abusing the Wells process as a scare tactic now.
— Jake Chervinsky (@jchervinsky) May 6, 2024
Similarly, Hayden Adams, the founder of Uniswap, another entity that recently received a Wells notice from the SEC, criticized the agency for targeting “good actors” instead of providing clearer regulations for the crypto industry.