The United States Securities and Exchange Commission (SEC) has defended in court that the approval of a firm’s S-1 application to go public does not signify a “blessing” from the agency. In addition, it does not confirm that the firm is regulatory compliant.
SEC’s Position in the Pre-motion Hearing
During the pre-motion hearing of the SEC vs. Coinbase case on July 13, the SEC denied endorsing Coinbase’s business structure when approving its public listing in April 2021.
Court Proceedings: SEC’s Stance Clarified
Peter Mancuso, the SEC trial counsel, highlighted that the SEC’s approval of an S-1 filing does not mean endorsement of the company’s business structure. He added that there is no evidence that the SEC evaluated specific assets and confirmed that these would not later be deemed as a security.
Crypto Twitter Responds
Crypto Twitter, including Gemini co-founder Cameron Winklevoss, raised concerns over these statements. The question arose why the SEC would allow a potentially noncompliant business to go public when its main goal is to safeguard U.S. consumers.
Legal Requirements for U.S. Firms
Before listing shares on a national stock exchange, U.S.-based firms are obliged to submit an S-1 filing to the SEC. This document should present a detailed account of their business structure and use of proceeds from an initial public offering.
Judge Raises Questions
U.S. District Judge Katherine Polk Failia, after hearing Mancuso’s comments, expressed skepticism and asked a series of questions. She stated that she presumed the SEC would have performed due diligence on Coinbase’s operations.
SEC’s Reiteration and Mancuso’s Reply
Responding to these questions, Mancuso reaffirmed the SEC’s claim that the S-1 filings are designed for approving company disclosures rather than endorsing a business structure. On whether the SEC could have instructed Coinbase to register as a securities exchange, Mancuso chose not to comment.
The Coinbase Controversy
Coinbase was initially accused by the SEC of conducting unregistered securities offerings since 2019. Coinbase is seeking an early dismissal of the case, arguing that the SEC is prosecuting the firm despite a detailed description of its business structure and planned activities prior to the public offering.