On June 2, as suspicions about the Coinbase exchange spread, Paul Grewal, the firm’s top legal officer, reassured consumers that their cash was safe there.
Certain parts of a May SEC filing by Coinbase said that in the event of bankruptcy, crypto-assets kept in custody on behalf of customers may be “subject to bankruptcy proceedings” and that users may become “unsecured creditors” in the process.
Coinbase announced losses of $430 million in the first quarter of 2022, with revenue down 27% year over year. To make matters worse, the story broke just as Coinbase’s trash bonds began to lose value.
Coinbase’s chief legal officer addressed and detailed the issue in a blog post published Thursday, as rumours that the business would go bankrupt spread on social media.
Paul Grewal tweeted the following:
Customers’ funds are protected “both legally and physically,” according to Grewal. The firm’s Retail User Agreement was also modified, according to the chief legal officer, to extend institutional clients’ bankruptcy protections to retail investors as well.
Grewal further stated that the company does not take any action on its clients’ assets until the users directly request it. This includes traditional banks’ use of the funds for lending and other commercial activities.
Brian Armstrong, the co-founder and CEO of Coinbase, addressed the problem in May. The CEO stressed that the company is “not in danger of going bankrupt,” and that the language was simply introduced to comply with a new SEC requirement. In any case, he underlined that its consumers are protected by rigorous legal safeguards.
Read more: Short seller Jim Chanos warns Coinbase and MicroStrategy to might face short fall
