- Former SEC official, John Reed Stark, discredits Coinbase’s defense, asserting that the SEC’s approval for their Initial Public Offering (IPO) does not shield them from their current legal scrutiny.
- Stark warns that misrepresenting the SEC’s role in IPO approvals could constitute a ‘criminal offense.’
John Reed Stark, a former high-ranking officer of the U.S. Securities and Exchange Commission (SEC), has fired back at Coinbase’s argument regarding their legal turmoil, categorizing their defense strategy as a potential ‘criminal offense’. Stark’s comments follow the recent lawsuit filed by the SEC against Coinbase, in which they allege the leading US crypto exchange functioned as an unregistered securities exchange, broker, and clearing agency.
Brian Armstrong, Coinbase’s CEO, quickly took to Twitter in response to the lawsuit. He contended that the SEC had examined their operations and granted them the permission to become a public company in 2021. This was through the approval of the exchange’s S-1 initial public offering.
However, Stark, who founded the SEC’s Office of Internet Enforcement and served as its chief for 11 years, disagreed vehemently with Armstrong’s claim. He stated that the SEC’s approval of Coinbase’s IPO should not be misinterpreted as a carte blanche for all future activities of the company.
Stark clarified, “The goal of SEC review is to ensure that investors and potential investors have all the facts before buying a security, not to confirm that any business is legitimate…The SEC does not evaluate the merits of securities offerings, or determine whether the securities offered are ‘good’ investments or appropriate for a particular type of investor.”
Drawing a parallel, he pointed out that the SEC does not validate the safety of vehicles sold by automakers nor the drugs produced by pharmaceutical companies. Stark also referred to Coinbase’s own S-1 document which concedes the potential for future regulatory scrutiny regarding securities classifications.
Stark went as far as branding Armstrong’s defense as “criminal”. He referenced the ‘SEC No Approval Clause’ that every prospectus or offering document must contain, which asserts that the SEC does not approve or disapprove securities, or verify the truthfulness or completeness of the prospectus. Any misrepresentation to the contrary is, indeed, a criminal offense.
With this stringent critique of Coinbase’s defense strategy, Stark predicts a victory for the SEC in this ongoing litigation.