Twitter user “MetaLawMan,” a crypto-friendly legal analyst, recently tweeted about the potential legal battle between the Securities and Exchange Commission (SEC) and Coinbase. According to the tweet, the SEC’s case against Coinbase has a fatal flaw that could lead to the agency losing the case.
MetaLawMan pointed out that the issue lies entirely with Gary Gensler. Once he became the Chairman of the SEC, Gensler testified before Congress on May 6, 2021, and stated that the SEC lacks the authority from Congress to regulate crypto exchanges.
The issue for the SEC is that Gensler’s testimony was entirely correct. The authority to regulate crypto exchanges is a major question that only Congress can answer. If the SEC decides to sue Coinbase, the legal team at Coinbase will likely focus on the communications within the SEC leading up to Gensler’s testimony.
Coinbase’s Legal Team Prepares For Battle
MetaLawMan notes that the SEC conducts a thorough internal vetting process of all testimony given by its Chairman. It means that there will likely be a paper trail, including emails, meeting notes, memos, text messages, chats, and deposition testimony, indicating that the SEC had reached a consensus that it did not possess legal authority from Congress to regulate crypto exchanges.
MetaLawMan suggests that the SEC’s lawyers will have a challenging task of explaining away their own Chairman’s testimony to Congress and all the documents and discussion that preceded it internally within the SEC. It’s a highly embarrassing prospect for the SEC.
Moreover, Coinbase will conduct discovery around Gensler’s decision to suddenly claim that the SEC has the authority to regulate crypto exchanges without any Congressional authorization. MetaLawMan predicts that this will be highly damaging for the SEC, as they must explain the sudden reversal in their stance.
Nevertheless, if the SEC decides to sue Coinbase, Gary Gensler will likely become the star witness at the trial – for Coinbase. Whether the SEC has the authority to regulate crypto exchanges is a major question that only Congress can answer. Should the SEC fail to win the case, it could have considerable implications for the future of cryptocurrency regulation in the United States.
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