Gary Gensler Refuses to Wax His Gross, Hairy Back
Ah, the old bait-and-switch, that tactic so beloved of used car sales agents, clickbaity headline writers (hello!) and now of course — the Securities and Exchange Commission.
Yesterday Gensler sued Coinbase, a public U.S.-based business that has made significant and ongoing efforts to comply with U.S. laws in its operations. And in so doing, he finally played his hand.
The bait in this case was very simple. “Come in and get registered,” he cried, pointing to a sign above the SEC entrance that says “Free puppies and ice cream in Room 101”.
The switch was equally simple: A Wells notice for the firm, explaining that the SEC intends to sue Coinbase over several matters including its staking service, and assets listed on the exchange that the SEC alleges to be securities.
Paul Grewal, Chief Legal Officer at Coinbase, explained on Twitter that the company has tried to work with the SEC, but that any good-faith efforts to do so have been either ignored or rebutted.
“Over the past 9 months, CB has met with the SEC more than 30 times, sharing details of our business to build a path to registration. During this time, the SEC hasn’t given basically 0 feedback on what to change, or how to register. Instead, today we received a Wells notice.” Grewal tweeted after the notice was made public.
“Even when giving us our Wells notice, the SEC wouldn’t specific assets giving them concern or what specific arguments that we’ve made on staking are wrong. Instead, we were simply told to consider the Chair’s generic statements.”
Gary Gensler has repeatedly made such statements…and “generic” is somewhat generous.
“Come in and get registered,” may well be his go-to, but there are others.
“Kraken knew how to register, others know how to register, it’s just a form on our website,” he said when Kraken settled over their own staking program.
However, a source within Kraken told Blockworks that the ‘form on the website’ is an S-1. Which carries a reporting burden of over 970 hours, according to the Corporate Finance Institute — even when the rules are clear.
And, perhaps more pertinently, the S-1 is a pre-IPO form which would involve the admission that the filer intends to trade securities.
Which, of course, Coinbase and Kraken deny, for the simple reason that it has never actually been made clear by the SEC which tokens are possibly securities, which aren’t, and which might be open for debate.
So what’s the point of suing Coinbase?
This is the real bait and switch, and it’s playing out not only against the exchange itself, but against the entire industry.
Compliance was never the goal for Gensler’s SEC. The only thing he’s selling is chaos, and it’s a very deliberate ploy.
The Coinbase lawsuit, if forthcoming, will be vigorously contested by the company. Which means that it could take years to resolve.
The unsuccessful party might then decide to appeal whatever decision is handed down by the court, and even pursue the verdict all the way to the Supreme Court. More years.
Quoting Grewal again: “So what happens next? We avail ourselves of the court system to finally start to get some clarity for the crypto industry in the U.S. Ironically, establishing some case law may be our best shot at getting the regulatory clarity that the industry deserves.”
Gensler doesn’t care if he wins or loses — he’ll be long gone by then, perhaps to the Treasury job he apparently covets. (Sources tell Blockworks that since Gensler is one of the most detested people on Capitol Hill, the chances of that role materializing are between zero and nil.)
Meanwhile, the regulatory purgatory in which crypto exists will persist. Many institutional investors will be unable to safely and confidently participate in the industry due to the ongoing lawsuit and the lack of clarity that will continue until it is resolved.
Which is precisely the situation that we’re in today.
We don’t know the rules, and if we try to play by the rules, the rules get changed. (Retroactively, no less!)
As Brian Armstrong, CEO of Coinbase — rather eloquently — put it “Imagine you’ve got both football and soccer refs on the field, but we’re actually playing pickleball (fastest growing new sport in America). The refs can’t really agree on the rules of this new game, and one of them decides to change a call they made back in April 2021.”
Uncertainty is the one thing that truly destroys financial innovation. Fiduciaries can’t deal with it. Responsible investors and entrepreneurs shouldn’t have to.
And yet that’s the whole point of Gensler’s latest, and perhaps most serious, action.
The bait: He’s suing Coinbase.
The switch: He’s trying to destroy the entire crypto industry in the USA.