Why Coinbase is Suing the SEC with Paul Grewal, Coinbase's Chief Legal Officer

Transcript

bankless Nation we have a special bonus episode for you today because guess what just happened coinbase announced they are suing the SEC yep we could do that apparently David we've got the chief legal officer from coinbase who's going to give us all of the details in the rundown what's important about this episode what are we doing today two big things uh there's a big news that just dropped is that coinbase has responded to the SEC Wells notice so that got that information got released two hours ago so we are going to talk to Paul the chief legal officer of coinbase who is in that response Not only was it a normal response where you dropped up a legal letter and submit it to the SEC which is what you normally do it was also a video YouTube response so we got

influencer Gary and we got modern coinbase and these two insurmountable forces are colliding and bankless is here for it so that's the first thing uh and then also in addition to that coinbase is also suing the SEC and so we're going to talk about those details what does it mean to sue the SEC uh I didn't know you could do that I totally didn't know you could do that um but like we talked about uh for the last two weeks like man Gary really seems to be icarusing is this the final moment where Gary starts to turn over and decline uh we don't know uh but these are important moments in the history of this industry uh we have somebody and industry who's finally standing up to Gary Gensler to Gary the Tyrant and so we are going to just talk

to a coinbase's chief legal officer about the logistics like what does that even mean to go Toe to Toe with the SEC so that's the subject of today's show awesome guys and before we begin gotta let you know a message from our friends and sponsors over at safe they've got account abstraction and they've got a software development kit that is an SDK that they have just released and they have a hackathon coming up where anyone can join David give us a quick dldr of the details here we need more smart contract wallets in the world of crypto and that's why safe core is it's an SDK package to build more account instruction wallets out there so we could have this wonderful wonderful world a smart contract wallets uh and of course like Ryan said there is the

hackathon virtual hackathon uh to get that done if you want to participate in Europe for attackathon there's a link in the show notes to learn more there we go guys uh this story is developing in the moment so this is some news that just uh launched today and also I've noticed some tweets from Gary Gensler um also you know putting his position out there that he's given the SEC has given enough Clarity to crypto so uh this is definitely a Toto moment and we'll be right back with the chief legal officer of coinbase to talk about coinbase suing the SEC and what this means but before we do we want to thank the sponsors that made this episode possible including our friends and sponsors over at Kraken which is our number one recommended crypto Exchange

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tweeted out today we filed a narrow action in the U.S Circuit Court to compel the SEC to respond yes or no to a rulemaking position we filed with them last July in 2022 asking them to provide regulatory guidance for the crypto industry uh and so here is uh what it was filed this is the uh and this is the petition and so Paul I got some questions well what does this mean as a lawyer uh can you just kind of walk us through just the logistics of this like what what is this yeah thanks for having me on guys it's a it's a pleasure to talk to you about this so on Monday what happened was that coinbase filed what's called a petition

for a writ of mandamus and that's a fancy legal label for actually a rather simple request what we asked the Circuit Court to do was to order the SEC to provide us with a simple yes or no answer to what we think is a simple yes or no question which is will you issue rules for crypto last July so almost nine months ago give or take we filed a formal petition for rule making with this with the SEC and in that petition we asked you know something like 50 separate questions that we thought needed to be answered in order for there to be a reasonable path for registration for cryptocurrency exchanges like coinbase and simple rules that apply across the entire crypto economy and unfortunately the SEC despite having many many months to consider that

petition despite getting 1700 comments from others interested in the issue big companies individuals small companies public interest organizations you name it the SEC has said nothing they haven't even given us a response and so um the law fortunately gives us a remedy in situations like this which is to file a petition with the circuit court and and and to ask that circuit court to order the SEC to provide that answer so that's what we've decided to do now the standards of the law that apply to that kind of request are actually pretty straightforward Congress has told all agencies including the SEC that you have to respond to these kinds of petitions within a reasonable period of time which of course begs the question what's

reasonable what's reasonable yeah yeah right um now nine months delay is certainly in our minds unreasonable under any circumstances but in these particular circumstances it is particularly unreasonable and the reason why is at the same time as the SEC has given us no response whatsoever to that simple question they have made it abundantly clear in public statements and me interviews even in testimony to Congress uh just recently that they've made up their minds and they know the answer to that question and the answer that question is no what they're doing is on the one hand declaring that no rules are required and that the SEC has all the authority that it needs as things currently stand on the one hand and on the other hand denying coinbase

and the 1700 or so commenters to our petition a formal version of that same answer that would allow us to go into court and challenge the sec's refusal so we don't think that's uh permitted under the law and although we we never relished um the the opportunity to go to to court uh against an important regulator like the SEC we felt like we had no choice not just for coinbase but for the entire industry and so go to court is what we decided to do well we certainly the crypto Community the crypto industry certainly appreciates you guys taking this on I mean like if we could join this lawsuit uh we certainly could and we certainly can hear let our voices be heard in various ways and I think we'll have some calls to action for the bank list community

and how to get involved uh let me ask you the high level so you're just asking for some clarity on the rulemaking one thing that's been very emphatic in the testimonies that Gary Gensler provided in front of Congress is he said the crypto industry has already has the clarity we've been quite clear in fact um chair Gensler put out a video today specifying that he said this again I'm not going to get their quote direct but we'll include a link in the show notes people can go watch that three or four minute video he said I'm paraphrasing here that um the crypto industry already has all of the clarity that it needs the problem is not lack of clarity the the problem is lack of compliance which is

very interesting let me ask you just a high level question here Paul when was the last time the SEC actually gave the crypto industry some rules or some guidance or the types of things uh you're looking for when was the last time they did this formal rules never it's never happened not once has the SEC gone through a notice and comment rulemaking process that is set out under laws that were passed by Congress to give the cryptocurrency community any rules that would for example Define what a security is as it applies to digital assets that would define the appropriate Market structures that would have to be in place for an exchange to register that would define what disclosures issuers would have to make we've never

seen those rules and to claim now in 2023 that this is all clear and that every digital asset saved Bitcoin and perhaps eth which by the way the SEC chair seemed to struggle with in his recent testimony is is frankly disingenuous and that's just not coinbase saying that right you can look in the words or look at the words of the SEC chair himself to understand how clear this is go back to when it was Professor Gensler uh making very clear that 75 or more of the market was not even impacted by discussions of the Howie test and the application of the Supreme Court's standards to these topics

but if that's not good enough if that was just an academic musing as has been suggested by some look at the words of the SEC chair himself when as chair in May of 2021 he literally smiled the following words here's what he said he said right now there is not a market regulator around these crypto exchanges the next day after he said those words to Congress he said again that Congress needed to act before the commission could because quote there is no federal authority to actually bring a regime to the crypto exchanges so you don't have to take my word for it or the words of others who have raised concerns about

the shifting position you can look to the words of the SEC chair himself to understand that there is no Market Clarity you have confusion as a result of the chair's own shift and change and Dodge and positions and of course you have other Market you have other Regulators as well at the federal level who have taken diametrically opposed positions from the chair at the same time chair Benham for example the chair of the cftc has said that eth is a commodity subject to his jurisdiction you've had the doj the Department of Justice saying in a prosecution of a former employee of ours for insider trading that wire fraud not Securities fraud but plain old Garden variety wire fraud is the appropriate charge given uh

this nature of the assets at issue so it's just not it's just not palatable or plausible that somehow all of this has been resolved all this is clear and that you know companies like coinbase and others just need to come in and register when there's simply no way to do that so Paul how does uh chair Gensler get away from saying this over and over and over again is there any possible explanation for why he keeps saying there already is Clarity for example one thing he repeats often is the four the the prongs of the Howie test right I haven't heard him be more specific than that but is there any possible rationalize rationalization or justification for why he keeps

re-articulating that there already is Clarity is there anything you can give him do we have any Clarity coming into the SEC well let's be clear even in articulating the four factors there's often an omission of a key predicate to those four factors which is that you have to have wait for it in order for there to be an investment contract a contract or a transaction or a scheme that then involves an investment of money in a common Enterprise and so on and so forth so that predicate is critical it's everything and and every time that that test is articulated by the SEC they conveniently omit that that predicate in a way that obviously sweeps in many more assets than when otherwise qualify you know guys let me be very clear I agree completely that there are digital assets

out there that are securities in fact a number of them maybe even many of them we don't list them on our exchange we'd like to be able to I'd love to be able to offer cash your last digital asset Securities in the United States but we can't do that under the current law and so um the the Supreme Court tests are the law and and we we are happy to have that discussion and debate whether or not they apply to any particular assets but but they're not they're not clear um cert the SEC is not being clear certainly as to how it would apply those factors to the vast majority of assets and more importantly more importantly it is absolutely clear that the SEC has shifted its position it's changed its

mind it's flip-flopped pick whatever way you want to frame this from where it was just a short while ago to where it is today I'm not making up these words from the SEC chairman I'm literally quoting them just as we quoted them literally in our brief to the third circuit Paul going back to this uh petition the petition is to compel the SEC to answer yes or no to a yes or no question and that question is are you going to provide rules for the crypto industry and you're it's not saying are you going to provide these rules or those rules or a list of rules correct it's just saying hey can you tell us if you're going to provide rules generally speaking correct my understanding is correct yeah you've

got it exactly right look and look David the answer to that question as we all know is is in fact no they are not going to give us rules but they're not saying that and they're not saying that and and and the impact of that is very specific the impact of that is we can't on behalf of not just coinbase but the entire community of commenters in the entire industry take that rejection or denial and then go to court to challenge it so what we're saying in our petition that we filed on Monday is just give us the answer we respect you we understand we may have a difference of opinion this is not personal but let's not play games with the jurisdiction of the federal courts let's haven't let's have a full and fair and honest fight about this and um if we're wrong ultimately we will

respect the decisions of the courts we always do but you can't play games we don't think in order to deny that the discussion that debate that litigation even taking place right so the claim here is that the the SEC is operating in this like ambiguity gray area which which benefits them and so like what coinbase is trying to say is trying to get the SEC to respond yes or no because the SEC wants to live in that gray area and so what was really is going on here is is coinbase is trying to get to call the sec's bluff if you will understanding that they can't say yes or no because they don't want to say yes or no and that's really the Crux of this issue here correct well let's be

clear they can't say yes because if they were to say yes that would be to admit that rules were necessary and that would fly in the face of everything that the SEC has now been saying for several months um they can't say no because once we once we get a no we have a right to go to court and say that you got it wrong that rules are in fact required under the administrative procedure so they're trying to avoid that Reckoning however they can and again I I can understand you know tactically why this is the approach that they've taken but the law doesn't allow it and you know again we don't we don't I don't relish and coinbase doesn't relish that you know the the need to go to court I'd rather be doing other things I'd rather be coming on bankless and talking about new

product launches and new services and and new new opportunities that we're pursuing but the SEC has left us with no choice they created this situation we're just left with with no choice but to go to court to try to address it David one thing you said that I want to check with with Paul here is it's not it's not uh immediately clear to me um you said that there's maybe some perceived benefit for the SEC to kind of live in the gray and not give uh clear answers on this why why is that a benefit um the sec's mission is to uh you know have um Capital markets guard Capital Market formation State admission stated Mission um to uh help retail in in the midst

year um I I could go through kind of the full stage mission in a minute but you probably know it as well what why would they want to not provide Clarity to crypto is there an unstated Mission here that we're all suspecting them on well um it may be an unstated Mission but it almost certainly is an illegitimate mission right look the the fact is that all government agencies have to operate within the four corners of the authority that has been granted to them by Congress Congress gets to decide what their Authority is Congress gets to set the rules by which they operate they don't get to do that they have to operate within those constraints and

that's not just for the SEC that's true for every agency and I have a lot of I have a lot of respect for the federal government in its work and and almost every agency honors and respects that but in this particular case the four corners of authority that have been granted the SEC are much more limited are much more defined than perhaps the current commission and the current chair would like the fact of the matter is that under the federal Securities laws the SEC only has jurisdiction as to Securities surprise given their name and security has been defined yes very broadly the chair likes to point to Supreme Court uh precedents and others which makes clear they have broad Authority but broad Authority guys

doesn't mean unlimited Authority at least the last time I checked our constitution they are operating within constraints and in this particular case the key constraint is that Congress requires that the SEC established that these assets are investment contracts that's a very specific term with a very specific meaning under the law and so why would they insist upon this ambiguity as your question asks well it allows them to exercise influence and authority over parts of the market part types of technologies that Congress doesn't authorize them to do it allows them to extend their influence and expand their jurisdiction where the law says they can't that's what's going on

here so a power grab is perhaps what this might be uh although we're not sure what all of the motives and incentives might be let me ask you this Paul what types of rules are we looking for so obviously we want to know which things are securities and which things are Commodities um ether is the biggest example of this right we heard Patrick McHenry Grill and Gary Gensler and asking the question repeated fashion is ether a security or a commodity and a chair Gensler sort of dodging that question giving a non-answer this went on and on and on in the Congressional hearings that that happened a couple weeks back that's certainly one of them at least the

second largest asset uh in crypto can we call I mean it's been seven years can can we understand what that is in the US so that seems very easy to understand what other rules uh do does the crypto industry need Clarity on so in our July 2022 petition we asked something like 50 separate questions that we think need to be answered in order for it to be a comprehensive and fully functioning uh regulatory framework for crypto you're absolutely right what is or is not a security is certainly an important question it should not be a question that the three of us or any of your listeners should have to guess at over and over again even as to Eve as you point out we now have no Clarity uh as confirmed by the

chair's testimony last week on that very simple question but there are other questions that matter too for example what disclosure should issuers have to make in order to make in order to give investors the information they need in order to make good investment decisions there's a whole host of of requirements that we think could and should apply to digital assets digital assets have unique properties they have unique economics um that also we think relevant to material to an investor making a sound decision that needs to be laid out there are also sorts of questions about Market structure for example blockchains as you and your audience know very well do operate in very different ways than traditional assets the need for example

for all sorts of complex expensive and time-consuming intermediaries to settle trades largely goes away with digital assets and so a lot of the structures that are in place for traditional assets just don't make sense when it comes to crypto all it does is ADD cost and expense to the to each trade or each each activity that consumers want to engage in so we think there are a whole host of topics that could and should be answered and we're happy to start with whatever part of the list or anybody else's list that the SEC would like but unfortunately today I can't even tell you what the sec's views are on any of those questions heck I can't even tell you if we're even going to get an

answered our petition because they've simply refused to engage Paul um Gary ensler keeps inviting people in the crypto industry to his office right and this series is called office hours with Gary which is kind of an educational campaign and he keeps saying come in and register come in and talk to us and uh the projection to the world from the SEC and chair Gensler is that there's an open door for communication and crypto is being non-compliant but if you'd only come in and actually talk to The Regulators talk to the SEC talk to chair Gensler then we could smooth everything over has that been your working experience can you describe that because I you know most of us don't see that side of things I mean what have you tried to do to engage with the SEC in

the past so Ryan even as we've been very public in calling for rules for crypto and a notice and comment rulemaking process that would allow everyone to participate not just coinbase or a few favored parties but anybody with an interest in the topic we have engaged in private conversations going back to last September with the SEC in an attempt to lay out our ideas for what a registration framework might look like what a pathway to registration for exchanges like us might involve and um over the course of those 30 or more separate engagements that we've had with them 30 or more we have laid out everything we think about all these topics that we were just discussing and

we have been waiting patiently for any response by the commission any feedback or any counter proposal they wish to make when we finally got to the point where it was uh frankly we'd run out of things to say because after 30 engagements or more you you start to run out of room it was time for the SEC at that point to provide its position its response and the only response we got at that point in time was the following thank you very much we appreciate your time have a nice day and a few days later a short while later a Wells notice that's not come in and register are you that's not a dialogue that's a monologue that that ultimately I'm not kidding you

that's how it has played out and so the the you know the the notion that has been suggested that all you got to do guys is go to the website download a form come into compliance is laughable and frankly it's insulting to the hundreds thousands tens of thousands millions of people who are interested in this issue working on these topics guys twenty percent of Americans have now bought or sold crypto or otherwise engaged with crypto assets you have tens of millions of Americans saying we want this we want this to help solve some of the inequities in our traditional Financial system and what are they being told oh just go to the go to the website download a form it's no problem we all know that's not possible we all know

that's false Paul describing these cute cuddly accepting Gary in the front and then Tyrant closed-minded Gary sec in the back Paul these discussions uh that between SCT and coinbase in the past have they been like face to face I mean part of me is just like guys can we just all get in a room sit across the table human to human just talk to each other I mean it's not that hard the crypto industry coinbase included all of us we don't want the ftxs of the world we don't want the doe quons and Lunas and Tara's we don't want the Celsius as Alex machinski's it makes all of us look bad we hate it we want it out of our industry so why can't our Regulators

kind of partner with us why can't we just have a heart-to-heart discussion where we say you've got some goals we've got some goals here are the things that we share in terms of goals let's work on those together I mean has that has that been tried because the naive Ryan wants to say like hey I mean they're all people we're all trying to do the right thing maybe there's a miscommunication here uh maybe you know we should stop texting you know and and like emailing and actually get in person and meet has this been tried to Paul let me say a few things about all that first um yes of course we've had face-to-face conversations as part of this engagement including meeting in person um and I want to be very clear about one thing because I fear sometimes in the Um

passion of our disagreements there's a misunderstanding or misapprehension of the Dynamics in in those conversations the tone is cordial the tone is professional um um and by and large um I have I have a ton of respect for the hard work and the commitment of the staff at the SEC who are trying to do the right thing who want to get to a reasonable place but they operate under the direction and control of the political leadership of that agency that's just the way it is that's the way that the law has set things up and so as good-hearted and as much as they act in good faith at the staff level if the political leadership wants to take

things in a different direction the political leadership has the final say the other thing I will say is I fear sometimes when we talk about Regulators we narrowly focus on the SEC alone and obviously the SEC is super important to our industry but there are a whole host of other Regulators at the federal level here in the U.S even at the state level and of course lots of regulators around the world where the conversation the tone the pro frankly the the the productive nature of the discussions is entirely different right so for example um I have a ton of respect and we've seen great work coming out of the cftc and that's I think been you know well discussed in our community but the Department of Justice no softy by the way normally you know you don't look at

Federal prosecutors and say oh gosh how reasonable at least some people don't I happen to have had very good working relationships with many prosecutors over many years they're not cuddly though they're not cuddly and we don't we don't want them to be cuddly I'm a former Federal Magistrate Judge I don't want the usdoj assisting us attorneys to be warm and cuddly they're there to do hard work and to deal with tough issues all that said when they've looked at issues impacting coinbase and impacting crypto they've applied sound legal analysis A Certain flexibility and a commitment to getting it right I have a lot of respect for that the same is true even within Department of Treasury we've talked in the past about fincen and their

responsibilities for overseeing the AML laws of our country and monitor and executing are very important sanctions programs these are tough serious people they do not uh they do not uh you know uh give give people a break where they don't deserve it but they're reasonable they're committed they're good public servants so um just within the United States we've seen very different approaches by other Regulators I don't think it's fair to paint all of them with the same broad brush and that of course doesn't even begin to address All The Regulators outside the United States where in places like the UK Europe Singapore Australia you name it again you've got tough serious people who will hold you accountable if you cross a certain line but they also understand that in order

for us to move forward as a society for us to address some of the inequities in our financial system we have to nurture this industry even as we hold it accountable that's the part that's missing in one part of our federal government right now well speaking of people who have tough jobs coinbase of course has got to be one of those people because they are um you guys you guys are taking this fight to the to where it needs to go uh and this is actually only one half of the story that we've talked about so far the other half is the news that just dropped a few hours ago which is coinbase's response to the sec's Wells notice uh which was a new strategy out of coinbase did it in a video and so there's there's this conversation that we need to have Paul but then there's

also just like the meta conversation of this like this is there's no bigger fight than this one like if like other people who the SEC has gone after have settled they've passed on and like the SEC has moved on there's no bigger fight than this one so this is the this is you know this is the the grand finale right and so I want to just ask you about just like how far is coinbase willing to take this and what is that so sort of calculus but first before we get to that part of the conversation we have to talk about some of these fantastic sponsors that make this show possible especially metamask are strategic a wallet for 2023. uh go click on metamask Cheers learning about crypto is hard until now introducing metamask learn an open educational platform about crypto web 3

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hide your uglies burn the spam and also manage your nft sale listings from inside the wallet Phantom is of course a multi-chain wallet but it makes chain management easy displaying your transactions in a human readable format with automatic warnings for malicious transactions or phishing websites Phantom has already saved over 20 000 users from getting scammed or hacked so get on the Phantom waitlist and be one of the first to access the multi-chain beta there's a link in the show notes or you can go to Phantom dot app waitlist to get access in late February bagelization we are back and the recent news that just dropped coinbase responding to the sec's Wells notice uh not only with an official legal document that looks like a legal document but

also with this YouTube video that's on screen uh not watching it we'll put a link in the show notes so you can go watch it yourself it is both a 14 minute video and a four minute uh shorter video that summarizes it both with uh Brian the CEO of coinbase and also Paul here once again we're having having him twice on the screen uh and so uh we'll just need to start at the very beginning Paul uh what's a Wells notice and why does coinbase need to respond to it yeah so a Wells notice is just essentially a formal notification by the SEC that the staff has concluded preliminarily that uh you as a company or you as an individual have violated one or more of the federal Securities laws and so by giving you that notice they also give

you the opportunity to submit a brief and in our case a brief and a video to give our side of this of of the situation and to attempt to persuade either the staff in the first instance or the Commissioners themselves who will review a recommendation tendered by the staff that it doesn't make sense to proceed with the case or that the case as currently framed um ought to be changed or or or narrowed in some way that's essentially the wells process generally and that's the wealth process that we are we are going through as we speak yeah what what did they tell you what they're suing you for like what the deal is not quite soon what is the term for it enforcing right yeah well and

enforcement ultimately translates translates into or turns into suing so effectively one of this one in the same thing but the notice itself is not a formal charge um the formal charge will come once the Commissioners vote to approve what's been recommended and a complaint is filed in in Federal District Court um you know as to our wells notice uh look it was very generic it was very vague um it essentially rattled off a general description of our business and said you're violating the federal Securities laws of course of course of course they hold the pen on that and now because I was concerned and coinbase was concerned that somehow

um we might be accused of mischaracterizing what the wells notice said or how detailed it was I made a somewhat unconventional decision I'll I'll accept that um to to share the notice with the world so that people can reach their own conclusions and if they think I got it wrong they're they're free to say that but I think if you read that notice as as I shared um you'll agree that it doesn't really say very much it certainly doesn't identify any particular products or services in the form of tokens or assets that are are are are specifically violating the Securities laws and that's made it even more challenging than it otherwise has been for us to provide an adequate response but we've attempted to do our best and respond to the charges as they were presented right so this is on brand for this

particular administration of the SEC to do this stuff without much further Clarity so giving coinbase a Wells notice saying hey we're going to sue you and then going to further to describe coinbase's bases business model saying this is why we're going to sue you which from the coinbase perspective does absolutely nothing it's like yes thank you SEC that is our business why we still don't know why you're suing us and so you guys presented this uh this response and the response was basically uh the SEC allowed us to go public as a public company and we haven't changed the business model since you originally allowed us to do that so first you approved us and now you're giving us a Wells notice and this Wells notice is

sufficiently ambiguous that we still don't know why you gave us uh and so like we could go like zero in on the details and talk about how like like crazy this is which we've already we've done that that was the first half of this podcast but I just want to zoom back out it's like the SEC Gary is seemingly intent on picking a fight and coinbase is here ready to stand up to that and so my question to you Paul's like can you just like walk us through some of the calculus here like we got we got the chief legal officer of coinbase we got Gary who's I can't remember if he's a lawyer but he's lawyerly minded not a word um but like so what's the calculus here from from a lawyer's perspective

well to be clear he's not a lawyer he's very smart he's very capable he's among the most talented public servants we have I want to be very clear about all those things because sometimes people dismiss the chair because he doesn't have a law degree or suggests that he just doesn't understand how these markets work he knows exactly how they work he has studied the law scrupulously and so I think we just need to understand we're dealing with a very capable individual and a very capable commission as a whole look um how does this calculus work from our perspective I have to say one thing as a preliminary matter you know when when you get pulled over for speeding because you're doing 35 and a 25 or whatever the case may be and and you're at risk of having to pay a 50 or 100 fine even in those

circumstances guys you get a ticket and what does the ticket tell you it tells you the date it tells you the time of the alleged defense it tells you what make model and license plate number is being accused of violating the posted speed limit it provides the officer's name it provides other details which corroborate the charge in a way that gives you fair notice of what's going on how on Earth do we get to a situation or a place where doing 35 and a 25 gets that level of detail in terms of charging uh someone with violating a rule or a law but the wells notice the coinbase received in this trillion plus dollar industry as the only publicly listed company in the United States in crypto

and it doesn't even tell us for example these are the tokens that violate um uh one or more of the federal Securities laws here are the products and services specifically that you uh that you offer that we believe uh uh qualify as a security and therefore come within our jurisdiction and yet that's exactly where we are so against that backdrop how are we thinking about this I'll say it again I'll keep saying it because it is absolutely true we don't relish going to the uh going going to court with a important regulator like the SEC but in a situation like this one where Congress has yet to pass legislation that Reigns in this overreach by the regulator where the regulator has um made clear they have no interest in

issuing rules or no in and no and no real interest in engaging on what a reasonable path to registration might look like what other choice do we have but to go to court to get that same Clarity and again it's not just Clarity for coinbase we're very blessed to have uh ample resources I'll put it that way way to defend ourselves this is about getting Clarity for the industry because the make no mistake if the SEC is able to operate in this fashion vis-a-vis coinbase who's who's off limits right right who who is who is safe and uh from this kind of regulatory overreach so from our perspective it's not so much um uh do we have a uh do we have a

choice as to um uh whether or not to fight or not in art from our perspective it's uh what other choice do we have right yeah and it's we're thankful as an industry that coinbase is choosing to fight this fight and from from our perspective and this is what's confusing to me Paul from our perspective we made this claim when uh Ron and I are on one of the banker shows when the SEC served the wells notice that Weekly claimed this is like the S The Icarus moment of this current um this current regulatory body from this current Administration they're they're going after coinbase which has been pro-compliance low cooperation with the The Regulators from day one that's been the shtick of coinbase is working

together and been squeaky clean and uh working within the limits and Gary and the the SEC has done their ambiguity they're they're flip-flopping to me it's just like to me and Ryan in most of the industry just seems obvious that the SEC is gonna lose they're gonna they're like it's all it's not on their side but like you say said Gary is really really smart and so he knows the game he knows the battle so I'm just confused as to what makes Gary and the SEC so confident like why are they so confident that they can do this and I'm just so confused about that part let me speak to that um just because someone's really really smart

doesn't mean they're really really right or even right at all right and so um in this in this situation look I I I I can't speculate as to sort of anyone's motives or um their their their their their inner their inner thinking about uh uh you know bringing a case like this against a company like coinbase what I can say though is that um it is remarkable to me that we find ourselves in this place and in this situation with a Wells notice and a threat of litigation when as you point out we have operated not just in plain sight but banging on the sec's door for for more clarity for more rules for years and it is also remarkable I have to uh I I have to add that coinbase has received

this um a Wells notice with this record while um to my knowledge even as the SEC was talking to Sam bankman freed and FTX for many months I don't know how far back it went did they ever receive a Wells notice before they collapsed no they did not at least not one that's been disclosed publicly in the way that we've shared and we've been transparent about how on Earth does this make sense and and I have to also observe guys that you know as we're fooling around with this here in the United States and making a mockery of the rule of law the rest of the world is watching they're watching very carefully in the UK in Germany and Singapore and Australia you name it

Regulators are looking at the situation in the U.S and um I'll put it charitably They're laughing at us and they're doing more than just laughing at us they're they're seeing an opportunity to grab the mantle of leadership away from the United States and that's exactly what they're doing when they're when they pass um very tough very challenging rules like Mika in Europe and similar Frameworks elsewhere in the world that's what they're doing and we are sadly allowing that to happen that's the part that I can't understand more than anything else Paul you mentioned earlier that was unconventional for you to go out publicly with the wells notice also maybe unconventional to release the response to this in a YouTube video and

notice the way the the video starts um partially as as Brian tells his story uh as a kind of an entrepreneur with just an idea back in 2012 uh and having kind of no money a little bit of funding and growing a company to a publicly traded company uh in size and and making the decision to do this in the United States where it was unclear with the posture of the US government would actually be and he made that decision and I I can't help but notice that this seems to be you mentioned earlier uh 20 of Americans actually own crypto this seems to be somewhat of a battle of hearts and minds and I also think maybe Gary Gensler and members like some of the SEC know this

as well because he is uh releasing what we've called affectionately and backless influencer videos uh about kind of office hours in Gary and what his posture is so almost seems like there is a whole um PR angle to this or a whole um narrative battle battle for hearts and Minds I might say for this and I'm I want to ask you to what extent do you think this is actually a battle for public opinion and if it is a battle for for public opinion um you know is that persuasive enough like what you know what can we do to kind of help well it is it is in large part a battle for the hearts and minds of this country um look if anyone has any doubt about how the chair has thought about this issue

go back and watch the MIT lecture series you'll if you do that you'll see in one particular lecture Professor Gensler is explicit about how he thinks about establishing jurisdiction and Authority as a regulator he talks about beginning with the message and I'm care I'm paraphrasing here but that is that is almost exactly what he says he begins with the message and then he moves from the message to the policy right and that's what's happening here and notice what's missing in that little sequence the actual law right the law that Congress um passed that gives the SEC or any other agency whatever Authority it might have and so yes I do think there is a

battle for hearts and minds and it can be um amusing at the very least it may be frustrating um to see this campaign waged by the SEC on Twitter and elsewhere when there are serious um rule making to be done and no response has yet been tendered to a very simple yes or no question that we and others have posed but look um we can either be frustrated or amused by that or we can do something about it and so um you know we have to accept that we are in that battle as an industry not just uh coinbase but everyone in crypto is in that battle so we all have to get involved it's one of the reasons guys why we started uh recently and announced the formation of something called crypto 435 and the 435 refers to the 435 congressional districts in the United

States it's a wave for uh regular people people who don't pay attention to crypto day in and day out like some of us do but who care about having choice in their financial system and want to make their voice heard and want to register their concerns about how the SEC and perhaps others are going about this if you go to our Twitter handle you'll see that we've got a pin tweet that talks about how regular people can get involved with crypto 435 you can sign up you can you can add a shield to your Twitter handle and you can be directed to a site that provides more information on how to get involved we think it's very important that whether you agree with coinbase or not and we hope you do agree but even if you don't people need

to register their their concerns and lend their voices to this debate because if they don't the only voices are going to be heard in this debate are those of individuals and entities that are very hostile to crypto very hostile to any change to the current system and who are perfectly content to see the traditional Financial system persist in this country for another 50 or 100 years and all the Innovation move offshore that's what's at stake here Paul um there's certainly a lot at stake and we appreciate you spending some time with the bankless community to talk about all of these things I guess you know lastly and in closing it feels very much like 2023 has been a low point of our relationship with with crypto's

relationship with regulators and maybe the US government as a whole uh you understand some of this might be coming out of the the 222 backlash when there were more frauds and scams so understand some scrutiny there but at the same time it seems like uh the the people who've always been doing the right thing and and who have the same kind of end goals as uh Regulators are being held under scrutiny and I want to ask you if you think this gets worse before it gets better if you have any hope that the US actually comes through this period of time and comes out the other side with a sensible crypto policy that keeps crypto Innovation Forefront and doesn't leave

the us behind or if you think um it's going to be really rough and it could go either way do you have what hopes do you have about the future here well I want to be very clear that um even if in the short and perhaps medium term things will continue to be difficult in terms of the regulatory environment in this country I am extremely hopeful about the long term for crypto and the reason why I'm extremely hopeful is that if you look at the level of talent that's not just staying in crypto but coming to crypto even in this environment if you look at the uh investment Capital if you just look at the overall creativity that's we're seeing day in and day out across crypto I mean the future is bright and and

here's the thing that future is going to happen now I as an American I want to see that future happen here in this country as much as any other but it's going to happen and so we as a country have a choice to make do we want to push this Innovation overseas um uh and and and miss out on a once in a generation opportunity to shake up and change the financial system for the better or or or alternatively do we want to say let's let's have a conversation as you said let's sit down as fellow citizens face to face and talk through our differences and come to some reasonable accommodation that will balance the legitimate concerns that the SEC has and others have I want to be very clear they have an important Mission we should all support that

legitimate Mission but that also protects Innovation and nurtures Entrepreneurship so that we can continue to lead uh uh among nations I think that that that's what gives me as much hope as anything is that if we can just work through the challenges of this current uh environment the future remains very very bright and I remain very very optimistic well that's great uh so are me uh so are we I think we're seeing some glimmers of of Hope even Congress uh we we do have some friends in DC now there's a growing Coalition who's willing to fight for these crypto freedoms uh and thank you and coinbase for being a part of that as well Paul we appreciate this thanks guys I really appreciate your uh your time and uh really appreciate the support you've lent to what we're trying

to accomplish risks and disclaimers bankless Nation uh we'll include some links in the show notes where you can kind of get involved in in this Mission and add the shield to your Twitter profile and gotta let you know risk and disclaimers of course none of this has been Financial advice it's not legal or regulatory advice either of course crypto is risky you could lose what you put in but we are headed west you can guess who by the SEC that's true this is the frontier it's not for everyone but we're glad you're with us on the bank list Journey thanks a lot