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Coinbase got more than a Wells notice as cautionary advice before facing legal action from the SEC.
The SEC reportedly asked Coinbase to temporarily halt trading in all crypto assets, excluding bitcoin, prior to initiating a legal suit alleging violation of securities laws.
Coinbase CEO Brian Armstrong said that the SEC told the company it believes all assets, except for bitcoin, were considered securities, the Financial Times reported on Monday.
When Armstrong asserted that Coinbase held a different interpretation of the law, the SEC declined to elaborate on the reasoning behind its conclusion, according to the report.
Instead, the regulatory body insisted that “you need to delist every asset other than bitcoin.”
The SEC filed a lawsuit against Coinbase on June 6, claiming that the company was operating as an unregistered exchange. In the suit, the agency classified 13 cryptoassets as securities, including SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH and NEXO.
In a separate lawsuit against Binance, the CFTC has stated that bitcoin and ether are commodities.
SEC Chair Gary Gensler has previously categorized bitcoin as the only cryptoasset that can be deemed a commodity, while implying that all others might be classified as securities.
Coinbase did not comply with the advice, as doing so could have resulted in a large majority of crypto businesses in the US operating unlawfully unless they registered with the SEC.
According to Armstrong, he realized that the exchange had no alternative since “delisting every asset other than bitcoin, which by the way is not what the law says, would have essentially meant the end of the crypto industry in the US.”
Seeking the court’s opinion on the matter through litigation was a more feasible approach, he said.
Coinbase and the SEC didn’t return Blockworks’ request for comment by time of publication.
However, the SEC told the FT that its enforcement division does not formally request companies to delist crypto assets. The agency clarified that its staff may share their views on conduct that could potentially raise concerns related to securities laws.
What about Binance.US?
Prior to Coinbase, the SEC filed a lawsuit against Binance, accusing the exchange of conducting unregistered offers and sales of securities, alongside other allegations.
It’s unclear whether Binance.US was also requested to suspend trading in all assets except bitcoin. Blockworks has reached out for comment.
Coinbase seeks clear crypto industry guidelines
In March, upon receiving a Wells notice from the SEC, Coinbase said it was confident in the legality of its assets and services. The company also criticized the agency for what it perceived as an unfair and unreasonable approach in dealing with digital assets.
The exchange has sought dismissal of the SEC lawsuit, arguing that the agency lacks the authority to pursue civil claims since the assets traded on its platform are not considered “investment contracts” and, consequently, not classified as securities.
In a separate action, Coinbase has filed a lawsuit against the SEC, seeking to compel the securities watchdog to offer regulatory clarity for the industry.