Coinbase Faces FEC and SEC Legal Hurdles, Grewal Responds

Coinbase Chief Legal Officer Paul Grewal defends the firm against claims by the Federal Election Commission (FEC). The US-based cryptocurrency exchange faces allegations of breaking the rules, with claims that it is a “federal contractor.”

Meanwhile, The US Securities and Exchange Commission (SEC) has responded to the exchange’s subpoena for documents, including that of its chair.  

Coinbase Is Not a Contractor, Grewal Says

Grewal denied that Coinbase breached election campaign finance laws in its Marshall Service contract. Digital asset critic Molly White and Public Citizen claim that Coinbase violated FEC laws in its $25 million donation to Fairshake Super PAC.

“Last week, Public Citizen’s Rick Claypool and I filed a complaint with the Federal Election Commission based on my research into apparent campaign finance violations by the Coinbase cryptocurrency exchange,” White wrote.

Challenging this allegation, Grewal articulated that payments made to the exchange are not from Congressional-appropriated funds but from the sale of assets forfeited to the Department of Justice (DOJ) Assets Forfeiture Fund. He also said Coinbase is not a contractor, citing “misinformation.”

“Seized crypto assets are not congressionally appropriated funds, period. There is nothing new in the FEC complaint filed by a self-described crypto critic and Public Citizen’s research director. Notably, there is no minimum bar to file such a complaint. This one – filed by individuals with no election law expertise and funded by who exactly? – Appears to amount to a press release by another name,” Grewal wrote.

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It comes amid ongoing crypto donations to election campaigns, with crypto firms contributing to several Super PACs and other entities. According to Grewal, Coinbase has donated equally to Democrat and Grand Old Party (GOP) super PACs. He also highlighted $500,000 to House and Senate funds for each party, respectively, for 2024.

With these, Grewal indicates that petitioners only want to report a political bias that does not exist. Elsewhere, the exchange is still a loggerhead with the US SEC.  In April, the exchange subpoenaed the regulator, requesting documents and expanding the request to include SEC chair Gary Gensler’s communications.

SEC Responds to Coinbase Exchange’s Subpoena

After Judge Katherine Polk Failla critiqued Coinbase’s subpoena in July and the SEC opposed the request, citing “improper intrusion” into Gensler’s personal life, the exchange has made a formal response.

The SEC’s legal representatives say Coinbase’s request for millions of documents is a waste of time. In court documents filed on Monday, lawyers call out the exchange for “overreach,” adding that the subpoena is “disproportional” to the case’s needs.

“It is the Court’s analysis of the facts and the law, not the SEC’s internal discussions or discussions with market participants, that will decide this case, and Coinbase fails to cite a single case to the contrary,” an excerpt from the document reads.

The SEC also counters that Coinbase does not have any precedent regarding internal discussions being able to support its defense. Notably, the regulator has already provided more than 240,000 documents relevant to the case.

Therefore, the regulator indirectly urges Coinbase to explain the relevance of the additional documents it seeks. The exchange is expected to claim privileged status with most of the documents it seeks from the regulator and its chair.

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These developments suggest that the case, which began in June 2023 and is already over a year old, is far from over. At inception, the SEC claimed Coinbase operated an unregistered securities exchange, broker, and clearing agency. 

Coinbase’s stand is that the regulator is overstepping its regulatory authority without clear guidelines on what constitutes security in the first place. The exchange aims to use the documents to demonstrate this lack of clarity.

As BeInCrypto reported, the exchange has already ramped up its legal team, which could bode well for Coinbase as the developments continue to unfold.