Coinbase CLO Exposes SEC Double Standards on Crypto Rules

Coinbase’s Chief Legal Officer, Paul Grewal, has raised concerns over the U.S. Securities and Exchange Commission’s (SEC) inconsistent stance on crypto classification. Grewal pointed out what he described as double standards in the way the SEC has argued whether crypto assets should be classified as securities in different court cases.

Coinbase CLO on SEC’s Crypto Classification Fiasco

In a recent tweet, Grewal referred to the SEC’s arguments in the LEJILEX case, highlighting a specific contradiction. According to the reply brief filed on Wednesday, October 2, the SEC argued that “whether a digital-asset transaction is a securities transaction is not determined by the nature of the asset.”

However, Grewal claims that in Coinbase’s ongoing case, the SEC has taken a contradictory position. The agency has told the court that “crypto assets are unlike the tangible assets sold in [real estate] cases” and are therefore more likely to be considered securities.

“This is our government acting in the name of all of us. Telling one judge one thing while telling another the opposite should not be tolerated. We deserve better,” Grewal lamented.

Yesterday @SECGov filed a reply brief in the @LEJILEX case that argued “whether a digital-asset transaction is a securities transaction is not determined by the nature of the asset.” It’s remarkable because they argued the precise opposite to Judge Failla in our case. 1/3

— paulgrewal.eth (@iampaulgrewal) October 3, 2024

Moreover, the inconsistency in the SEC’s position could have significant implications for the broader crypto market, especially as regulatory scrutiny continues to intensify. As the Coinbase CLO points out, it is not just a technical issue but one that raises questions about fairness and transparency in the regulatory process.

The Ripple Appeal

On Wednesday, the SEC also made a significant legal move in its case against Ripple, filing a Notice of Appeal against Judge Analisa Torres’ July 2023 ruling. This ruling had classified XRP, Ripple’s native digital token, as a non-security when sold to retail investors.

However, the judge had imposed a $125 million fine on Ripple for selling XRP to institutional investors, classifying those transactions as securities sales. With the SEC’s appeal, the case remains unresolved. The regulator is now challenging the court’s decision, seeking to overturn the ruling in favor of XRP and reassert its authority over the classification of digital assets.

This move also attracted backlash from Coinbase CLO Grewal. Responding to Ripple CLO Stuart Alderoty’s post on the appeal, Grewal wrote, “If the law is as clear as SEC always claims, why ask an appellate court to clarify things? But okay— let’s have Second Circuit confirm once and for all that token trades on secondary markets are NOT investment contacts.”

Also Read: Jeremy Hogan: SEC’s Appeal of Ripple Ruling Could Backfire!