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Coinbase revealed that the company received a Wells Notice from the U.S. securities and exchange commission (SEC) indicating the regulator’s plan to carry out an enforcement action against the firm after investigations showed that Coinbase may have violated securities law.
SEC goes after Coinbase
In a blog post from March 22, 2023, Coinbase chief legal officer Paul Grewal said the Wells notice provided few details, stating that the SEC informed the company that the regulator “identified potential violations of securities law.”
According to a Coinbase filing, the crypto exchange said that “based on discussions with the Staff, the Company believes these potential enforcement actions would relate to aspects of the Company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet.”
However, Grewal stated that the firm asked the SEC to identify aspects of the company’s business it believed could be securities, but did not receive a response from the regulatory watchdog.
The blog post further said that the company presented its staking services to the SEC three times between 2019 and 2020, adding that the regulator did not express any concern about such a program at any time before the Wells notice.
Coinbase CEO Brian Armstrong in a Twitter thread said that the American regulator gave the green light for the cryptocurrency exchange to go public even with its S-1 filing referencing staking 57 times.
The latest development comes after Coinbase recently submitted a petition to the SEC giving reasons why staking may not be classified as securities. In February, rival crypto exchange Kraken paid a $30 million settlement fine to the SEC and also closed down its staking service, which the agency claimed was unregistered.
Meanwhile, the chief legal officer maintained that Coinbase staking services are not considered securities, even under the Howey Test, neither does the firm list or offer products that are securities.
More SEC actions against crypto companies
Grewal also mentioned the lack of regulatory guidance for the cryptocurrency industry in the United States, which will only succeed in driving companies overseas to jurisdictions with better regulation policies.
According to the executive, the SEC should prioritize developing a crypto regulatory framework rather than just carrying out enforcement actions.
Coinbase becomes the second company to receive an SEC Wells notice in recent times after Paxos. As previously reported by crypto.news, the SEC claimed that Binance stablecoin BUSD, issued by Paxos, was an unregistered security.
In other related news, the US regulatory watchdog also slammed a lawsuit against Tron founder Justin Sun, accusing him of engaging in the unregistered sale of TRX and BTT and market manipulation.
The SEC also sued eight celebrities including Jake Paul, Lindsay Lohan, Shaffer Smith also known as Ne-yo, and Aliaune Thiam popularly known as Akon, for illegally promoting TRX and BTT.