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Coinbase’s head of exchange leaving as SEC pressure mounts

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Coinbase (NASDAQ: COIN) is losing its head of exchange just as America’s securities watchdog hires a new legal eagle to spearhead ‘crypto’ wrongdoing investigations.

On Monday, Bloomberg reported that Vishal Gupta, Coinbase’s Head of Exchange/Markets since September 2020, was planning on leaving the exchange to pursue an undisclosed new blockchain-based project. Gupta followed up with a Twitter thread in which he said it was “time for me to move on” but played coy on his future plans.

Before joining Coinbase, Gupta spent over a year at Circle helping launch USDC, the Coinbase-affiliated stablecoin. Prior to that, Gupta was VP of product/business development at MoneyLion, a New York-based fintech firm with the stated goal of “rewiring the American banking system.”

Gupta is the second senior exec to depart Coinbase this year, following chief product officer Surojit Chatterjee’s departure in February. Before his departure, Chatterjee was responsible for such Coinbase ‘hits’ as the exchange’s NFT marketplace, which despite all you’ve heard, most definitely isn’t a ghost town that even wash traders can’t be bothered visiting.

Nonetheless, mirroring the traditional finance sector’s ‘failing upward’ and ‘revolving door’ policies, Chatterjee immediately assumed a new role as ‘executive in residence’ at Andreessen Horowitz’s a16z crypto fund. Over the years, a16z has invested in countless digital tokens of dubious utility, many of which Coinbase ended up listing, after which the notorious ‘Coinbase effect’ does the rest (at least, in the short term).

Gupta’s Twitter thread noted the numerous changes that Coinbase underwent during his tenure, including having boosted the number of digital assets listed on the exchange “from 27 to 236.” That nearly tenfold expansion of listed assets undoubtedly contributed to the decision by the U.S. Securities and Exchange Commission (SEC) to take a harder look at Coinbase.

Lawyering up

Last month, the SEC filed a Wells notice expressing the likelihood that the agency will “file an enforcement action” against Coinbase for violating federal securities laws. Coinbase’s chief legal officer Paul Grewal responded with a typically defiant blog post, arguing that Coinbase never does anything wrong and the SEC just hates freedom and stuff.

Coinbase’s increasingly aggressive tone in responding to regulatory oversight brought a rebuke from ‘Shark Tank’ star and crypto investor Kevin O’Leary, who recently observed that “litigating your regulator, in my opinion, is a really stupid idea…I don’t think the outcome is going to work out for shareholders there.” Mind you, O’Leary was once a passionate supporter of FTX and its indicted founder Sam Bankman-Fried, but hey, even a stopped clock is right twice a day, right?

The SEC appears to be taking this broader fight more seriously, as it’s currently advertising for a general attorney position at its Division of Enforcement’s Crypto Assets and Cyber Unit (CACU). The position’s duties include “conducting complex, fast-moving investigations” involving “crypto asset securities.” There’s no caveat that whoever gets the gig will be subject to drug testing, so even lawyers who’ve ingested too much hallucinogenic Krypto Kool-Aid may still be eligible.

In another intriguing development, SEC chair Gary Gensler tweeted Tuesday that the SEC will have an open meeting on Friday, April 14, “to consider whether reopening the comment period for proposed amendments regarding the definition of ‘exchange’ as set forth in Securities Exchange Act.” Interested parties can catch the stream at at 10 am ET.

Stark raving mad

In case you missed it, Grewal’s written response to the Wells notice was subjected to a savage takedown by John Reed Stark, former chief at the SEC’s Office of Internet Enforcement. Stark found Grewal’s arguments “weak, misguided and more akin to public relations than legal positions” and peppered throughout with “proven failures of crypto-mumbo-jumbo and ludicrous jaundiced rhetoric.”

Grewal claimed that the SEC’s approval of Coinbase’s direct listing on the Nasdaq in 2021 meant that the SEC had approved all of the exchange’s products/services. Stark clarifies that while the SEC reviews registration statements to see if disclosure rules are satisfied, the regulator neither evaluates the merits of securities offerings nor offers endorsements of the products/services described within.

Stark also notes that Coinbase’s own S1 filing warns investors that “the significant uncertainty surrounding the regulation of the cryptoeconomy requires us to exercise our judgement as to whether certain laws, rules, and regulations apply to us, and it is possible that governmental bodies and regulators may disagree with our conclusions. To the extent we have not complied with such laws, rules, and regulations, we could be subject to significant fines, revocation of licenses, limitations on our products and services, reputational harm, and other regulatory consequences.”

Grewal argues that Coinbase execs met with the SEC numerous times and, having not received some kind of direct cease & desist order, Coinbase assumed that everything was tickety-boo. But Stark notes that, as early as 2017, the SEC had publicly expressed concerns over Coinbase’s operations. Stark quotes Gensler’s famous maxim that “not liking the message isn’t the same thing as not receiving it.”

Grewal also claimed that the SEC failed to provide crypto operators with ‘regulatory clarity.’ Stark responds with former Supreme Court Justice Thurgood Marshall’s opinion that Congress recognized “the virtually limitless scope of human ingenuity, especially in the creation of ‘countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.’” As such, the Securities Act “enacted a definition of ‘security’ sufficiently broad to encompass virtually any instrument that might be sold as an investment.”

Finally, Stark rubbishes Grewal’s claim that U.S. federal authorities are engaging in ‘regulation by enforcement’ by noting that “litigation is precisely how securities regulation works.” Regarding the lack of crypto-specific language in securities regulations, Stark notes that “U.S. laws do not specify that one cannot steal a neighbor’s lawnmower from their garage, but rather prohibits the theft of someone else’s property, which covers all things, including lawnmowers. The same goes for securities regulation.”

Be aggressive, be aggressive, B-E-A-G-G-R-E-S-S-I-V-E

The SEC’s efforts to rein in crypto excesses got a boost last week from its Investor Advisory Committee (IAC), which sent Gensler a letter detailing its Views on Crypto Assets.

Sadly (for Coinbase), the IAC’s consensus is that “virtually all, if not all, crypto tokens are securities and that they, as well as the platforms and custodians dealing with them, are subject to regulation under the federal securities laws to protect investors.”

The IAC urges the SEC to “continue to be aggressive in bringing enforcement actions against companies that are violating the federal securities laws in the crypto space.” The IAC suggests seeking “appropriate additional appropriations” from Congress to ensure the SEC has the tools to do the job, including developing “specialized personnel with knowledge of the crypto industry.”

The IAC similarly urged the SEC to “aggressively continue to assert authority over crypto assets that are securities and over trading platforms that list or transact in such crypto asset securities.” The IAC opposes legislative efforts to “create special exemptions to the federal securities laws for crypto assets that would undermine investor protection.”

The IAC’s recommendations weren’t all about cracking skulls, suggesting ongoing efforts to educate investors regarding crypto risks, “particularly with regard to populations vulnerable to disparate impacts of crypto investing.” But they also recommend conducting “examinations of broker-dealers and investment advisers” who might be leading investors down the garden path.


We’ll close by noting that the outgoing Gupta is virtually unique in that his name doesn’t appear anywhere on the list of Coinbase execs who’ve dumped vast swathes of their shares since that April 2021 Nasdaq listing.

On the other side of that coin, Coinbase CEO Brian Armstrong’s ongoing fire sale of his shares in the company continues unabated. Armstrong unloaded another $1.9 million worth on March 27, pushing his total year-to-date sales within a whisker of $20 million. It’s almost as if he knows something the rest of us don’t.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance,, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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