SEC Argues Approval of S-1 Application Does Not Mean “Blessing” or Compliance Verification
The United States Securities and Exchange Commission (SEC) has clarified its stance in court regarding the approval of a firm’s S-1 application to go public. The SEC argued that granting approval does not indicate a “blessing” from the agency or a verification of regulatory compliance.
Court documents from the recent SEC vs. Coinbase case revealed the agency’s position. The SEC stated that it was not endorsing Coinbase’s business structure when it allowed the company to go public in April 2021.
During the pre-motion hearing, SEC trial counsel Peter Mancuso emphasized that approving an S-1 application does not equate to endorsing a company’s entire business or affirming compliance with the law. Mancuso specifically stated, “There is no way that an approval of an S-1 is a blessing of a company’s entire business.”
These statements by the SEC raised eyebrows within the crypto community, with individuals like Gemini co-founder Cameron Winklevoss questioning why the agency would allow a potentially noncompliant business to go public, considering its mission of protecting U.S. consumers.
In the United States, companies are required to submit an S-1 filing with the SEC before listing shares on a national stock exchange. This filing provides details about the company’s business structure and how proceeds from the initial public offering will be utilized.
U.S. District Judge Katherine Polk Failia expressed skepticism and raised questions about the SEC’s approach. Judge Failia expressed her surprise that the commission did not intervene if Coinbase’s activities violated securities laws or if there were potential issues with the assets on the platform.
In response, Mancuso reiterated the SEC’s argument that S-1 filings primarily focus on approving company disclosures rather than the agency endorsing a business structure through approval.
Judge Failia later questioned whether the SEC had the authority to advise Coinbase to register as a securities exchange, to which Mancuso responded that he couldn’t speak to that matter.
The SEC initially charged Coinbase with alleged unregistered securities offerings dating back to 2019. Coinbase is seeking an early dismissal of the case, arguing that the SEC is charging them despite the agency having been thoroughly informed about its business structure and planned activities before the public offering.
The ongoing case between the SEC and Coinbase has drawn significant attention from the cryptocurrency industry, as it will likely have implications for how regulatory agencies approach the burgeoning crypto market.
It remains to be seen how the court will rule in the SEC vs. Coinbase case, but it is clear that the SEC’s approval of an S-1 application does not imply a “blessing” or compliance verification of a company’s business structure.