I had no idea Brian was planning this

Brian ArmstrongWe knew this was coming. We've been preparing for this since 2021. The strategy doesn't change. We litigate, we win, and we set the precedent the whole industry needs.

Coinbase executiveDo we have any chance of settling?

Brian ArmstrongNo. Gensler doesn't want to settle. He wants to make an example of us. And honestly, I don't want to settle either. We need a court to rule on whether tokens are securities. Settling just kicks the can down the road. If we settle, the next company gets sued, and the next, and the next. Someone has to fight this. It might as well be us.

Coinbase executiveThis is going to be expensive.

Brian ArmstrongIt's going to be the best money we ever spent. If we win, we define the industry. If we lose, the industry moves offshore. Either way, we know where we stand. We're not going to be the company that got sued into submission. We're going to be the company that fought back.

Paul GrewalThe SEC's theory is that virtually every token traded on our platform is a security. If that theory is correct, our entire business model is illegal. We believe the law is on our side, but we should be clear-eyed: this is an existential challenge.

Paul GrewalThe SEC's position is that the Howey test applies to nearly all digital assets. Under their theory, any token where the purchaser expects profits based on the efforts of others is a security. That covers essentially everything except Bitcoin, and even Bitcoin is not entirely safe under their framework. The SEC has never formally said Bitcoin is not a security. They have only said it through enforcement discretion.

Paul GrewalOur best argument is the major questions doctrine: Congress has not given the SEC clear authority to regulate an entire new asset class. The SEC is trying to do through enforcement what it should be doing through rulemaking. But the major questions doctrine is unpredictable. The Supreme Court has applied it sparingly, and the lower courts have been inconsistent. We cannot assume we will win on that basis.

Paul GrewalI want to be clear about the timeline. If we lose the motion to dismiss, we're looking at 2-3 years of discovery and trial. If we lose at trial, we appeal. That's another 2 years. This case could last until 2028 or beyond. We need to budget accordingly and communicate to the board that this is a long-term commitment.

Coinbase attorneyWe need to understand what Gensler actually wants. He's not going to win this case, at least not completely. The courts are skeptical of SEC overreach on crypto. So what's the endgame?

Coinbase attorneyOne theory: he wants Congress to act. He's creating a crisis that forces legislators to write new laws. The lawsuit is a leverage play. If he can make the status quo untenable, Congress has to step in. The SEC can't regulate crypto effectively under the current statutes. Everyone knows this. Gensler knows this. He's trying to force the issue.

Paul GrewalAnother theory: he wants to run out the clock. If he can tie us up in litigation for 2-3 years, the industry consolidates, the weaker players die, and the survivors are more willing to register. It's a war of attrition. He doesn't need to win the case. He just needs it to last long enough.

Coinbase attorneyEither way, we need to be ready for a multi-year fight. The legal fees alone will be nine figures. We should budget $150 million for the first two years. And we need to be prepared for the possibility that the case goes all the way to the Supreme Court.

Paul GrewalAgreed. This is not a case we settle. This is a case we litigate to final judgment and then appeal. Every step of the way. We're not just defending Coinbase. We're defending the entire industry. If we lose, there is no crypto industry in the United States. It's that simple.

Brian ArmstrongHow strong is the motion? Be honest.

Paul GrewalIt's strong on the Wallet claim. The SEC overreached there. They're trying to argue that software is a broker. That's a stretch even for them. I think we win on that. On the core tokens-as-securities question, it's harder. The Howey test is broad. The courts have applied it to orange groves, whiskey casks, and condominium investments. It's not hard to see how they could apply it to tokens.

Brian ArmstrongWhat's our best case on the core question?

Paul GrewalBest case: Judge Failla grants the motion in full. She finds that the SEC lacks statutory authority and that the major questions doctrine applies. The SEC appeals. We win at the Second Circuit. The SEC petitions for cert. The Supreme Court either denies cert or upholds. That's a 3-4 year timeline. Worst case: she denies the motion in full. We're in discovery for 2 years. Trial in 2026. Appeal in 2028. Supreme Court in 2030. We spend $500 million on legal fees. And the industry operates in limbo the entire time.

Brian ArmstrongSo we're betting the company on a judge we've never met.

Paul GrewalThat's what litigation is. We're betting the company on the quality of our arguments and the persuasiveness of our brief. I like our odds. But there are no guarantees.