SEC vs. Coinbase with Coinbase's Chief Legal Officer, Paul Grewal

The SEC is showing all of its cards. Gary Gensler doesn't want the crypto industry to exist at all. After yesterday's Binance suit, the SEC is going after Coinbase too. We brought on Coinbases's Legal Officer, Paul Grewal to hear how Coinbase plans to fight, how you, Bankless listener, can join the fight, and what's next for the crypto industry. Should we be optimistic? ------ 📣 ASYMETRIX | STAKE stETH NOW https://bankless.cc/asymetrix-pod ------ 🚀 Airdrop Alpha is waiting for you on Bankless.com https://bankless.cc/Alpha ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE https://bankless.cc/MetaMask ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 👾STADER LABS | ETHX LIQUID STAKING https://bankless.cc/Stader 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/Toku 🎮IMMUTABLE | GAMING ECOSYSTEM https://bankless.cc/Immutable 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ------ Timestamps: 0:00 Intro 3:09 Coinbase Sued 4:42 Timing 6:50 What Does the SEC Want? 9:08 Gary's Confidence 10:38 SEC's Token/Security Choices 12:34 Will Coinbase Delist Tokens? 14:35 Freezing Coinbase Assets? 15:26 Next Steps 17:05 Future Court Case 18:20 What to be Optimistic About? 19:52 How to Join the Fight 21:02 Closing & Disclaimers 21:45 Coinbase Video https://twitter.com/coinbase/status/1666135834062467083?s=20 ------ Resources: Coinbase Sued https://twitter.com/BanklessHQ/status/1666061613357584384?s=20 Crypto435 https://www.coinbase.com/public-policy/advocacy/crypto435 ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:16David Hoffman?

  Bankless Nation, war has been declared on crypto. Today, the SEC announced charges against Coinbase for operating an unregistered securities exchange, broker, and clearing agency. Coin is down 10% on the news. We have Paul Graywell on the show. We had him on six weeks ago, when Coinbase was originally given a Wells notice from the SEC. Now that day has come, we're bringing him back onto the show now that the lawsuit has been filed, and we're going to get to him in just a moment, but first, a moment to talk about, talk to these fantastic sponsors that make the show possible. Kraken Pro has easily become the best crypto trading platform in the industry. The place I use to check the charts and the crypto prices, even when I'm not looking to place a trade. On Kraken Pro, you'll have access to advanced charting tools, real-time market data, and

• 0:58David Hoffman?

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• 1:42David Hoffman?

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• 2:21David Hoffman?

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• 3:06David Hoffman?

  Build, play, and connect at immutable.com. Bankless Nation, I would love to introduce you to Paul Graywell, the Chief Legal Officer at Coinbase. And while I'm sure Paul is a great guy, whenever he is on the show, it's usually not for a great reason. Paul, welcome back to Bankless.

• 3:23Speaker 01

  Hey, David. It's great to be back on. Thanks for having me.

• 3:26David Hoffman?

  Paul, so today's the day, huh?

• 3:29Speaker 01

  Well, a lot's happened today for sure. There has been no shortage of activity over here at Coinbase. But in a lot of ways, this was a day we knew that would come, and so we've been preparing for it for a very, very long time.

• 3:43David Hoffman?

  Yeah, so the SEC served a Wells notice to Coinbase six weeks ago. That's when we last talked. Today's the day that that Wells notice finally came into fruition for a suit. Is there anything new here? Like, you guys were prepared for this all along? Is there anything that's a surprise today for you guys?

• 4:00Speaker 01

  No, I don't think there was much in the substance of the complaint that was a surprise at all. You know, the SEC did charge Coinbase with a number of violations of federal securities laws. You know, the honest reaction I had when I first got a copy of the complaint this morning, David, was, "Finally, finally, I now at least know what it is that we are accused of." Because as you and I talked about six weeks ago, Coinbase has been operating in the dark, largely because the SEC has refused to tell us until this morning exactly what products and services give it concern. So, in a certain way, it was a moment of great relief, more than anything else.

• 4:39David Hoffman?

  Yeah, so that answers actually my next question about like, when did you know this action was going to be filed? So it sounds like you found out today that this lawsuit was going to be today. The timing of this is interesting because Paul, you were a little bit busy today. What was up with the timing of the SEC with the choice to drop this lawsuit today?

• 4:58Speaker 01

  Well, you say the timing is interesting, David. I'll say it's curious. I'll leave it at that. The fact of the matter is, I learned about this complaint about, I don't know, 45 minutes before I was scheduled to walk over to Capitol Hill and testify before the House Agriculture Committee on a draft bill that was released last Friday. So, yeah, it's interesting, curious, pick your word, that the SEC chose this morning of all days to file the lawsuit.

• 5:26David Hoffman?

  Yeah, and this draft bill is a bill that would provide clarity and regulation to the industry that we would much like to have clarity and regulation for. And so it's just perhaps interesting that now is one of the biggest news, biggest pieces of news that the crypto regulatory industry has in the last like year or so. Okay.

• 5:46Speaker 01

  Yeah, the bill is actually quite interesting and quite important. It will provide for the very first time, a real market structure for digital assets, including both digital asset commodities and digital asset securities. It will provide a pathway for registration, serious oversight, real protection for consumers and investors. A lot of the things that we have been clamoring for, for many months, if not many years in the industry. And if anything, David, this morning's lawsuit only proved the point that we were discussing before the House Agriculture Committee, which is, rather than develop and issues reasonable rules that everybody can live with, in order to bring crypto inside the regulatory perimeter,

• 6:30Speaker 01

  one part of the federal government has chosen a very different path, a path that relies entirely on a regulation by enforcement campaign.

• 6:37David Hoffman?

  Yeah, the juxtaposition could not be clearer. The law in question would provide exactly what we were asking for in the crypto industry to prevent exactly from what is happening with Gary Gensler and the SEC and this lawsuit with Coinbase. I want to read out a tweet that is circling around crypto Twitter because I think at this point, we're beyond reasoning with the SEC. At least that's how I feel personally. So this tweet reads, "Let's be clear. The SEC complaint doesn't mention this, but there's currently no way for a platform like Coinbase to register as a securities exchange, broker, or clearing agent. That's why they, Coinbase, has been begging the SEC for years to give them a path to compliance. Instead of working constructively with US market participants to come up with a working

• 7:19David Hoffman?

  model and knowing that Congress is actively considering legislation to do the same, the SEC sues. No allegations of fraud, just accusing Coinbase of failing to do the impossible." Failing to do the impossible.

• 7:34David Hoffman?

  From your, I don't know to what degree you have the freedom to speak. Do they, Gary Gensler knows this is impossible, right? And so my question is like, what's the motivation? What is the end game here? Because they're putting Coinbase in a rock and a hard place. They're saying these commonly listed assets that every exchange has are securities. There seems to be a dead end here. What's your perspective on the actual, like, what does, what does the SEC want, judging by the actions?

• 8:00Speaker 01

  Well, I can't, I can't look inside of anybody's heart or head and know exactly what they're feeling or thinking. But what I can say is that you're absolutely right, David. As things currently stand today, not only Coinbase, but no operating exchange or other intermediary can register with the SEC in a way that would allow it to list and trade registered digital asset securities. And that's not just me saying this as the chief legal officer of Coinbase. As it turns out, earlier today, in the, in the testimony that was presented at the House Agriculture Committee hearing, the chief legal officer of Robinhood, Dan Gallagher, made a very similar point in that, like Coinbase, Robinhood also has registered broker dealers.

• 8:44Speaker 01

  But like Coinbase, it has nothing to list or trade on them because there's no Way for issuers to practically register under the current regime. It's one of the reasons why we filed our petition for rulemaking back in July. And it's one of the reasons we've been banging on the SEC's door to work with it, to develop a sensible path to registration that will work for everyone, including investors and consumers.

• 9:09David Hoffman?

  What I'm confused about, Paul, is why Gary has so much confidence. They already are going after XRP, which is its own beast of a fight. But now they've picked, they've picked fights with Coinbase and Binance, the two largest crypto exchanges in the industry. What, what trick does Gary have up his sleeve? Like, why does he feel so confident that he can do this?

• 9:32Speaker 01

  Well, as I've said all along, the SEC chair is extremely intelligent, extremely sophisticated, and should never, ever be underestimated. I found it very interesting today, however, that at least four or five times during the hearing that I attended and testified at, the chair of the CFTC actually presented his own testimony earlier in the proceedings. And at least four or five times by my count, Chair Benham, the Chair of the CFTC, repeated over and over again that Ethereum, ETH, is a commodity, not a security. Now, you, you follow these issues closely enough to know, David, that Chair Gensler

• 10:13Speaker 01

  has refused to answer that question, even when he himself has been testifying before the Congress. So the contrast could not be stark between the rest of the federal government, many, if not all of the states, almost all of the other countries that have taken a serious look at crypto regulation, and this one part of this one branch that seems to have a very different attitude and approach to sensible regulation.

• 10:38David Hoffman?

  So with the Wells notice that was around six weeks ago, the Coinbase said that the SEC refused to say which tokens were securities. So one of the things that has happened in the last two days with this Binance and Coinbase suit is that tokens have actually been named, specific tokens, like the, the commonly discussed tokens that are on crypto Twitter, like Solana, Matic, Cardano, tokens that I hold, tokens that many Bankless listeners hold. Is there any, is there any insight as to how the SEC picked this set of tokens?

• 11:08Speaker 01

  Well, I have I have very little insight for a couple of reasons, David. One is the complaint does not provide much, if any, detail on why and how these assets, but not others, somehow qualify as securities under the Howey test and federal law. It's also quite interesting, David, that despite the chair's insistence that Ethereum

• 11:33Speaker 01

  might in fact be a security, notwithstanding what everyone else seems to have concluded, Ethereum was not charged in this particular claim that was filed against us, or as I understand it, against Binance. Here's the other thing that's really, really interesting, David, about the assets that the SEC chose to accuse, at least in our case. They didn't charge XRP historically. They didn't charge XRP in the Binance complaint. Binance has, at least as I understand it, has listed XRP for some time as well. So it's really, really challenging, I'll pick my words carefully, to understand the rationale that the SEC is relying upon, which to my mind suggests it's really, really challenging to understand why the leadership of the SEC is so confident in this legal analysis across a whole range of these issues.

• 12:18David Hoffman?

  Yeah, you say challenging. I like the word chaotic. How can we can't pattern match when the SEC is going after Ripple, deeming it a security, but leaves Ripple out in an exchange that is currently listing Ripple, talking about Binance, of course. So when the SEC declared Ripple, XRP, a security, Coinbase and most other exchanges delisted it. Now, in this particular suit, there's many more tokens, and all of these tokens also have much more public support than Ripple ever did. Will Coinbase be delisting these? Or is there a strategy here? Like, I know you guys have only had so much time to think about this, but what's your guys' approach to this?

• 13:00Speaker 01

  Well, we have only had just a very little amount of time to fully analyze these issues. But I will say this, the You know, the decision to list or de-list is one that we continuously engage in. We always consider new facts and circumstances. And so as we have before, and as we will continue to do going forward, we will take this new information and again, once again, evaluate whether or not the listing these assets is appropriate as non-securities. Here's the thing, though, David, I think that sometimes gets lost. We want to be able to list assets which qualify as securities. It's one of the reasons why we've been banging on the SEC's door, asking for rules for many months now.

• 13:40Speaker 01

  It's also one of the reasons why I testified today in, in, in, in support of this initial approach that the House Agriculture Committee and the House Financial Services Committee together have proposed. It goes a certain distance, I would argue, a long distance, towards addressing so many of the fundamental challenges that all of us have, whether you're talking about XRP, Matic, or any of the other assets that the SEC has seemingly arbitrarily charged as securities. We're eager to, to, to get to a, a, a, a regime where strong standards are put in place, strong consumer protections will apply, but there's a pathway for not just the Coinbase's of the world, but for issuers and others in the crypto economy to understand that even if an asset

• 14:23Speaker 01

  may initially be a security for one reason or another, it can evolve over time. It can decentralize in a way that makes it plain that it should be treated as a non-security as a commodity under a very different set of rules.

• 14:36David Hoffman?

  So I'm not sure if you saw, Paul, but the SEC just moved for a TRO to freeze Binance's assets.

• 14:44David Hoffman?

  Binance U.S., that is, hopefully, hopefully not, but I'm wondering if, if there's any worry that they might do the same thing for Coinbase and if Coinbase is prepared for that.

• 14:52Speaker 01

  Well, I, I did see a word across my screen about an, an application for a temporary restraining order that would allow the government to see certain assets in the Binance case. We, we have not been, uh, served with any such notice, and I'm confident that we won't because the standards that would allow the, the SEC to make that request or application simply don't apply in our case. I can't, the Binance case, but I'm confident that we will have our full and fair opportunity to defend ourselves in court in our case, and we intend to take that opportunity up.

• 15:26David Hoffman?

  So Paul, what are the next steps here? Is there, do we have a date? Does Coinbase have a date with Gary in court? Like, how do, what can we expect in the next coming days, weeks and months?

• 15:35Speaker 01

  Well, the, the, you know, the feeling of relief I mentioned very, at the very beginning of this podcast, David, actually went beyond just knowing finally what products are being accused. It's also a feeling of relief that we now, along with the SEC, are both parties in a court proceeding overseen by a federal judge. And that means that a federal judge, a neutral, a respected third party is going to have the final say on how this case proceeds, what claims have merit, what claims do not, and frankly, whether the SEC has been following the law in its arbitrary campaign of enforcement going on how many, many months now. So as to how quickly this will all proceed, that is a ultimately a decision for the court.

• 16:20Speaker 01

  And of course, we will respect whatever schedule the court sets. I think though, that you and other listeners can look to other cases that have been brought by the SEC over the last couple of years and understand that these cases can take not just many months, but in some cases, many years. And so there is not likely to be a very quick resolution in at least our case, because we intend to defend ourselves. It's all the more reason why, David, that we believe so strongly that there needs to be sensible rules in place. There needs to be a legislative framework adopted so that these issues get vetted in an efficient, low-cost,

• 16:57Speaker 01

  high credibility manner, as opposed to one-off cases brought in court that take months or years to reach their conclusion.

• 17:07David Hoffman?

  Well, call me an optimist, Paul, but if, if you're telling me that this, this case about which of these assets are crypto securities, if this takes years, I'm optimistic that we're actually going to be able to get legislation passed in that time. If that is true, how would that impact the actual court case?

• 17:24Speaker 01

  Well, I'm, I'm hopeful as well. I have to say that one of the things that struck me about today's hearing, David, was that it was serious. The Congress men and women asked probing questions. It's clear they have been giving serious thought to these very challenging issues.

• 17:41David Hoffman?

  They seemed interested.

• 17:43Speaker 01

  Very interested. And here's the other thing, it was bipartisan. I thought the care that came from one side of the dais was matched by the care from the other. And it's also clear from the chair's comments, Chair Thompson and Chair Patrick McHenry over in the House Financial Services, that they intend to move forward on this very, very quickly. So I'm very hopeful that we're going to see progress here as to how quickly and how much progress. Well, that's, that that still remains to be seen. And in the meantime, we're going to defend ourselves in court. We're very confident that any court looking at the issues raised in the SEC's complaint is going to reach the same conclusion as we have. The SEC is dead wrong. They've misapplied the law, and that these claims have no merit.

• 18:22David Hoffman?

  Well, Paul, I think I can speak for the entire crypto industry when I, when I say Coinbase has our support. And thank you for, for fighting the fight in, in court. Give us the silver lining here. What, what's the light that you see at the end of the tunnel? What, what can we be excited about, even if this does take a very long amount of time?

• 18:41Speaker 01

  Well, I can understand why, why, why some listeners may be discouraged by these recent events. But if you just take a half a step back, you'll see that you've got now clarity emerging all over the world, regulators in London, in Singapore, in all kinds of countries adopting serious, strict frameworks that impose real burdens on, on, on crypto developers and exchanges, but recognize that crypto is an important asset class, and critically, that crypto is here to stay. That's something I think we should be enthusiastic about. Here in the United States, I think it's also important to be optimistic and excited that we have the Congress engaging

• 19:20Speaker 01

  with these issues in a very serious way, and at least based on today's hearing, in a very bipartisan way. That gives me cause for hope. But the biggest reason why I'm ultimately hopeful here, David, is that, you know, the crypto developers out there building interesting new networks and use cases and utilities, their work continues unabated. I don't think there's anything that happened today or in, in, in any of these recent matters that should discourage anyone from continuing to, you know, put in the hard work, develop great products and services, and continue to grow this amazing community.

• 19:52David Hoffman?

  What can bankless listeners, what can people sitting in their homes, listening to this or watching this on YouTube? How can we help? How can we join the fight?

• 19:59Speaker 01

  So the number one thing you and your listeners can do is to make your voices heard. The folks in the Congress, the folks in the executive branch, they all understand one thing, which is what their voters tell them. And so raising one's voice appropriately, respectfully, but firmly is very, very important. And that goes beyond just a retweet. That goes just beyond a like. We have started something at Coinbase called Crypto435. The 435 refers to the 435 congressional districts in this country. If you go to our Twitter handle, you'll see a pinned tweet that lays out all the ways in which listeners can get involved.

• 20:42Speaker 01

  Crypto435 teaches people how to connect with their elected officials. It speaks to all the ways in which to advocate for cryptos and sensible crypto regulation. This is an important opportunity and important time for everybody to get involved.

• 20:57David Hoffman?

  Well, Paul, thank you so much for coming right out of DC into this live stream. I really, really appreciate it. We will put that pinned tweet into the link in the show notes. Paul, there is this promo video that Coinbase dropped today. So I'm going to say goodbye to you and then we're going to play this video so Bankless Nation, stick around. Paul, I really appreciate you and thank you for fighting, fighting the powers that be for things that I deem to be authoritarian and top down and just not resembling crypto values.

• 21:26Speaker 01

  Thank you, David. I appreciate it.

• 21:28David Hoffman?

  Bankless Nation, you know the deal. Risk and disclaimers. Crypto is risky. Bitcoin is risky. Ether is risky. Trading illegal crypto securities is definitely risky, but sometimes you can't really help it. You can lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we are glad you are with us on this bankless journey. Now let's watch the video.

• 22:02David Hoffman?

  The.