Coinbase CLO Dismisses Allegations Of $25M Illegal Political Donation

In a recent controversy, Coinbase, a popular U.S. cryptocurrency exchange, is under scrutiny for allegedly making an illegal $25 million political donation. These allegations suggest that this donation to Fairshake, a super PAC aimed at supporting crypto-friendly political candidates, violated federal campaign finance laws.

The federal laws prohibit contributions from current or prospective federal government contractors. However, the exchange’s Chief Legal Officer (CLO), Paul Grewal, has fired back at these allegations. He clarified that the crypto exchange hasn’t violated any federal law.

The Allegations & Timeline

Molly White, a noted crypto critic, highlighted that the exchange’s $25 million contribution on May 30, 2024, came during a prohibited period. According to White, the U.S. Marshals Service (USMS) had issued a contract opportunity on March 4, 2024. They sought a provider to manage and dispose of large quantities of cryptocurrency assets.

Bids for this contract were due by April 1, 2024, and on July 1, 2024. Moreover, the contract worth $32.5 million was awarded to Coinbase. The Federal Election Commission (FEC) stipulates that federal contractors are barred from making political contributions from the time a request for proposals is issued until the contract is completed or negotiations are terminated.

Given this, White argued that the exchange’s $25 million donation on May 30, 2024, fell well within this restricted timeframe. Furthermore, another $500,000 donation by the CEX to the Congressional Leadership Fund on March 20, 2024, came into the spotlight. White argued that this donation could also be scrutinized under these regulations.

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Coinbase CLO’s Response

Paul Grewal, the exchange’s CLO, strongly refuted these allegations, labeling them as “misinformation.” Grewal took to X and wrote, “Whether intentional or not, this is misinformation. Coinbase is not a federal contractor under the plain language of 11 CFR 115.1. USMS isn’t paying us with appropriated funds—something it made clear in the public RFP.”

Grewal further clarified that the funds associated with the USMS contract are sourced from the Department of Justice’s Asset Forfeiture Fund (AFF), which is not composed of appropriated funds. He emphasized, “The Fund receives proceeds from the sale of property forfeited to the U.S. Government under the Department of Justice Asset Forfeiture Program.”

This, according to Grewal, exempts the crypto exchange from the definition of a federal contractor under the specific campaign finance regulations. In response to White’s updated report, Grewal expanded his defense.

He argued that the rules relevant to the situation are not about general political spending by federal contractors but about specific definitions laid out in 11 CFR 115.1 and 28 USC 524(c)(1). He pointed out that the DOJ’s Asset Forfeiture Management Staff regards AFF as a leading non-appropriated source of funding for federal law enforcement.

Legal Experts On Coinbase’s stance

However, legal experts from Public Citizen, as cited by White, have contested Grewal’s interpretation. They argued that the Supreme Court has clarified that an appropriation is any law that authorizes expenditures from a specified source of public money for designated purposes. Public Citizen pointed out that a Congressional Research Service report describes the AFF as appropriated by Congress, challenging Grewal’s assertion that AFF funds are not appropriated.

The legal experts stated:

“Grewal’s argument that funds in the Assets Forfeiture Fund are not ‘appropriations’ is incorrect. Just this year, the U.S. Supreme Court rejected a similar contention, making clear that an appropriation is simply ‘a law that authorizes expenditures from a specified source of public money for designated purposes’. Consistent with the Court’s holding, a report16 published by the Congressional Research Service explicitly describes the Department of Justice’s Asset Forfeiture Fund as appropriated by Congress.”

The debate over whether Coinbase’s $25 million donation to Ripple-backed Fairshake was illegal hinges on the interpretation of what constitutes appropriated funds and the definitions provided in campaign finance laws. The outcome of this dispute could have significant implications for the exchange and other companies in similar situations. It could particularly affect those engaged in federal contracts while participating in political contributions.

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