Coinbase’s chief legal officer questions SEC’s Wells process in legal dispute

Coinbase's chief legal officer Paul Grewal criticized the U.S. Securities and Exchange Commission for deviating from its own Wells notice process, according to his X post on Tuesday.

“In a brief to avoid dismissal of its case against Debt Box with prejudice, [the SEC] includes a remarkable admission that it did not follow its own typical Wells process when it refused to tell us what assets would be charged as securities,” wrote Grewal.

In SEC’s Monday legal filing in part of its lawsuit against crypto platform Debt Box, the agency said its staff “typically provides a thorough explanation of the evidence” used to prove its potential charges on an entity.

Grewal pointed out that this statement marks a significant flaw in the process of the SEC’s enforcement action against Coinbase.

“We received no ‘thorough explanation’ of the evidence of what assets supposedly gave rise to securities transactions.  We weren't told what assets were at issue at all,” Grewal added. “Why would the government not follow its "typical" process in our case, and what does that say about its claims?”

Coinbase was sued by the SEC in June last year for allegedly engaging in the unregistered offer and sale of securities since 2019. The legal dispute is still ongoing, where the SEC recently requested the court to deny Coinbase’s appeal against the agency’s lawsuit.

Abuse of power?

In March, a federal district court judge in Utah had reportedly criticized the SEC for a “gross abuse” of power in accusing Debt Box of defrauding investors of over $49 million, according to a Bloomberg report. The judge had also reportedly said that the SEC’s case against Debt Box was “marred by false statements and misrepresentations." Two SEC attorneys who had led the case have resigned from the agency, the report said.

There are mounting arguments that cite the SEC’s alleged abuse of power in its enforcement actions against crypto companies. When trading app Robinhood received the SEC’s Wells notice earlier this month for alleged securities violations, Rodrigo Silva-Herzog, special counsel at Cooley LLP, had commented on X that the SEC is on its “carpet bombing campaign” against crypto.

Hayden Adams, Founder of Uniswap, which is another entity that received the SEC warning recently, lambasted the agency for allegedly attacking “good actors” instead of establishing clearer rules for the crypto industry.

The SEC did not immediately respond to The Block’s request for comments.