America’s largest cryptocurrency exchange, Coinbase, is being prepared for official enforcement action by the Securities and Exchange Commission (SEC) for the sale of unregistered securities.
Following a flurry of recent investigations and legal actions taken against Coinbase’s rivals, the government filed a Wells Notice against the exchange on Wednesday.
Coinbase detailed the Wells Notice’s warning of potential breaches of federal securities laws, such as the Securities Exchange Act of 1934 and the Securities Act of 1933, in a filing with the SEC.
The company believes the SEC is having problems with Coinbase’s main spot exchange operation, its staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet based on conversations with SEC personnel.
A Wells Notice is a potential precursor to a lawsuit, which may seek “injunctive relief, disgorgement, and civil penalties,” even if it is not a guarantee. Last month, the SEC issued a Wells Notice to Paxos, the BUSD stablecoin’s issuer, for violating securities laws. The parties are still attempting to resolve the matter.
The SEC has already cautioned Coinbase about other potential products, looked into the company’s listing procedure, and punished rival exchange Kraken for providing a service that was almost exactly the same as Coinbase’s. In light of this, Coinbase stated that it was ready to take legal action against the organization and even welcomed it.
3/ While we understand that this is all part of the journey to reforming our financial system, we are right on the law, confident in the facts, and welcome the opportunity for Coinbase (and by extension the broader crypto community) to get before a court.
— Brian Armstrong 🛡️ (@brian_armstrong) March 22, 2023
As long as it has to do with its asset listings or staking services, Coinbase and its CEO have maintained that their business complies with securities rules. Armstrong claims that the court system will provide him “an open and public forum before an impartial body” to make the same argument.
Even if companies wanted to, there was no feasible method for them to register their products with the commission, according to the SEC’s critics.
Kraken CEO Jesse Powell made fun of the agency after it was penalized last month for implying that the procedure was as easy as completing a form on a website.
Even a commission member herself defended the sector in this case, calling the SEC’s enforcement “paternalistic and lazy.”
Similar remarks criticizing Coinbase were made in response to the Wells Notice by Coinbase’s chief legal officer, Paul Grewal.
“The SEC hasn’t given basically 0 feedback on what to change, or how to register,” he said. “Instead, today we received a Wells notice.”
