Lawyer Expects SEC to Lose if It Sues Coinbase Due to ‘Fatal Flaw’ of Gary Gensler’s Own Making

A lawyer has explained why the U.S. Securities and Exchange Commission (SEC) will likely lose if the regulator takes crypto exchange Coinbase to court over alleged securities law violations. “The problem is entirely of Gary Gensler’s own making,” he stressed.

Lawyer James Murphy explained in a series of tweets Wednesday why he believes the U.S. Securities and Exchange Commission (SEC) will lose if it takes Coinbase to court. Murphy started law firm Murphy & McGonigle in 2010 to represent clients in the securities and banking industries. The firm pivoted in 2017 toward representing emerging companies that leverage blockchain technology.

Referencing a Wells Notice, a formal communication that typically precedes a lawsuit, that the securities regulator sent the Nasdaq-listed cryptocurrency exchange in March, the lawyer opined:

If the SEC follows through on its threat to sue Coinbase, I believe the SEC will lose. The SEC’s case has a fatal flaw. And the problem is entirely of Gary Gensler’s own making.

Murphy explained that SEC Chairman Gensler himself said in his testimony to Congress on May 6, 2021, that the SEC does not have the authority to regulate cryptocurrency exchanges. Gensler’s testimony followed his confirmation by the U.S. Senate on April 14, 2021, to serve as chair of the SEC. He was sworn into office on April 17, 2021.

If the SEC files a lawsuit against Coinbase, the crypto exchange’s legal team “will surely zero in on the communications within the SEC leading up to Gensler’s May 6, 2021 testimony,” Murphy said, adding that “All testimony of an SEC Chairman is thoroughly vetted internally before they testify.”

Murphy stressed: “So there will be emails, meeting notes, memos, text messages, chats, and deposition testimony showing that: There was a consensus within the SEC that it lacked legal authority from Congress to regulate crypto exchanges.”

He continued:

If they sue Coinbase, the SEC’s lawyers will have the unenviable task of trying to explain 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.

“Even more damaging will be all the discovery Coinbase will conduct around Gensler’s decision to pull a 180-degree reversal and suddenly claim that the SEC does have the authority to regulate crypto exchanges in the absence of any Congressional authorization,” the lawyer emphasized. “His unequivocal testimony before Congress and his bizarre 180-degree reversal make Gary Gensler himself the star witness at trial — for Coinbase.”

Do you think the SEC will lose against Coinbase if it takes the crypto exchange to court over alleged securities law violations? Let us know in the comments section below.