Judge Criticizes SEC Approval of Coinbase IPO in Pre-Motion Conference

Southern District of New York judge Katherine P. Failla called to attention the U.S. Securities and Exchange Commission’s (SEC) approval of Coinbase’s Initial Public Offering (IPO), hinting that the agency could have been more thorough. Failla expressed skepticism about the SEC’s posture that approving the Coinbase S-1 form to go public meant “nothing,” stating that the commission could have called out Coinbase’s behavior.

SEC v. Coinbase: Judge Failla Was Skeptical Towards Regulator’s Posture on Coinbase IPO Approval

Katherine P. Failla, judge for the Southern District of New York, has called attention to the U.S. Securities and Exchange Commission’s (SEC) behavior when approving the Initial Public Offering (IPO) of Coinbase to go through back in 2021. Failla hinted that the commission might have done more to signal the problems in the exchange’s business model before greenlighting its listing on Nasdaq.

During the pre-motion conference of the case, which took place on July 13, Failla was curious about the SEC approval of the S-1 form from Coinbase, which described its business model to the commission to be listed in public markets.

Failla questioned SEC attorney Peter Mancuso about this, stating:

Is there some significance that I should give, or maybe there is none, to the fact that the commission issued the S-1 and didn’t say, hey, watch out, guys, you’re engaging in securities laws violations?

Mancuso stated that there was “no way” that approval of an S-1 constituted a “blessing of a company’s entire business.” However, Failla pressed the subject, expressing “skepticism” towards the SEC’s stance. She declared:

You never could have said to them, hey, you guys need to register as a securities exchange. That was within the power of the SEC to do, was it not?

While Mancuso explained that he could not “really speak to that,” Failla explained that nothing stopped the commission from doing it.

Further Criticism

The approval of Coinbase’s public offering came up again further along in the discussion, with Sullivan & Cromwell’s Steven Peikin blasting the commission’s stance, stating:

The fact is, other judges have had the exact same instinct that you have had and have said, in numerous instances, the fact that the commission reviews and authorizes a registration statement is of some legal weight.

The approval of Coinbase’s IPO was signaled in one of the filings before this pre-motion conference as part of the exchange’s defense, stating that the commission allowed Coinbase’s shares “to be sold to millions of retail and institutional investors” and implying that the recent lawsuit contradicts this approval action, given that six of the twelve assets deemed to constitute securities by the commission were already listed on Coinbase’s trading platform at the time.

What do you think about the position of Judge Failla on the SEC’s approval of Coinbase’s IPO? Tell us in the comments section below.