The SEC and America’s largest cryptocurrency exchange seem to be heading for a legal battle.
America’s largest cryptocurrency exchange, Coinbase, is being prepared for formal enforcement action by the Securities and Exchange Commission (SEC) for the selling of unregistered securities.
Following a handful of recent investigations and legal actions taken against Coinbase’s rivals, the agency issued a Wells Notice against the exchange on Wednesday.
Coinbase vs. SEC
According to Coinbase’s explanation in an SEC filing, the Wells Notice warned investors of possible violations of federal securities laws, such as the Securities Exchange Act of 1934 and the Securities Act of 1933.
The company believes the SEC is experiencing issues with Coinbase’s primary spot exchange business, its staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet based on conversations with SEC staff.
A Wells Notice is a likely precursor to a lawsuit, which may seek “injunctive relief, disgorgement, and civil penalties,” even though it is not guaranteed. Last month, the SEC issued a Wells Notice to Paxos, the BUSD stablecoin’s issuer, for violating securities laws. The parties are still working to resolve the matter.
The SEC has previously warned Coinbase about other intended products, tried to look into the company’s listing process, and fined rival exchange Kraken for providing a service 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.
In response to the Wells Notice, Coinbase CEO Brian Armstrong tweeted, “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.”
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 laws. Armstrong claims that the legal system will give him “an open and public forum before an unbiased body” to make that same argument.
Even if companies wanted to, there was no reasonable way 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 fined 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 regarding Coinbase were made in response to the Wells Notice by Coinbase’s chief legal officer, Paul Grewal.
He said that the SEC had provided virtually no guidance on what to change or how to register. Instead, we received a Wells notice today.