In pre-motion hearing for SEC lawsuit against Coinbase, Judge Faila has raised question over SEC approval of Coinbase S-1 filing. Read here.

Last Thursday, a pre-motion hearing in the high-profile case between Coinbase and the Securities and Exchange Commission (SEC) raised some intriguing questions.

U.S. District Judge Katherine Polka Faila queried why the SEC is suing Coinbase now, two years after it approved the S-1 for the crypto company’s Initial Public Offering (IPO).

A company’s S-1 filing is a prerequisite for an IPO – it provides detailed information about the company’s business and intended use of IPO proceeds to potential investors.

Could the Coinbase S-1 Filing Undo the SEC’s Lawsuit?

Coinbase, the largest U.S. cryptocurrency exchange, made its Nasdaq debut in April 2021, after its S-1 form was declared effective.

Fast forward two years, and the SEC is pursuing legal action against Coinbase, alleging the company violates securities laws.

Judge Faila, acknowledging she might be putting undue weight on the issuance of the S-1, suggested that in Coinbase’s case, the filing could hold some legal significance.

“It’s not crazy…for Coinbase to think that what they were doing was okay because it was exactly what you let them do when they issued the S-1,” said Faila.

SEC’s counsel responded by arguing that the S-1 approval does not imply any validation of the business model or indicate that the SEC supports Coinbase’s operations.

“Simply because the SEC allows a company to go public does not mean that the SEC is blessing the underlying business…or saying that the underlying business structure is not in violation of the law,” he clarified.

Leading Crypto Industry Voices Weigh-In on S-1 Debate

This assertion from the SEC sparked a lively debate among prominent voices on Crypto Twitter over the SEC’s seemingly indecisive approach to exchange regulation.

Gemini co-founder Cameron Winklevoss, among others, questioned why the SEC would let a possibly non-compliant company go public, considering its mandate to protect US investors.

Judge Faila expressed skepticism, suggesting the SEC could have forewarned Coinbase about potential legal issues.

She stated that while she doesn’t expect the SEC to be “omniscient,” she thought the agency would have conducted diligent research into Coinbase’s operations.

Steven Peikin, part of Coinbase’s legal team, and a former co-director of the SEC’s enforcement division, sided with Judge Faila.

He cited instances where the SEC declined to review registration statements for companies it had concerns about and agreed with Faila’s discomfort with the SEC’s stance on Coinbase’s S-1 approval.

Cathie Wood Sells $53m in Coinbase Shares

In pre-motion hearing for SEC lawsuit against Coinbase, Judge Faila has raised question over SEC approval of Coinbase S-1 filing. Read here.

Meanwhile, in the background, significant Coinbase shareholder Cathie Wood, of Ark Invest, has sold $53M of Coinbase shares, coinciding with the company’s stock price hitting a 52-week high.

The ongoing SEC vs. Coinbase case is drawing worldwide attention, especially in the aftermath of Ripple’s win in the SEC lawsuit.

As the lines between traditional finance and digital currencies blur, the outcome of the Coinbase lawsuit could redefine the SEC’s role and its approach to regulating crypto businesses, alongside setting a precedent for how digital assets are regulated in the United States.

The entire crypto community is watching closely, stay tuned.