Coinbase gets US notice signalling intent to sue over crypto offerings
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The US securities regulator has formally declared plans to bring enforcement action against Coinbase Global.
PHOTO: REUTERS
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Washington – Coinbase Global said it has received a notice from the US securities regulator formally declaring plans to bring enforcement action against the largest US crypto exchange, the latest development in a long-running dispute between the watchdog and the digital asset company.
Securities and Exchange Commission (SEC) chairman Gary Gensler has repeatedly said many of the tokens and products offered by crypto companies are securities and that the trading platforms need to register with his agency. Those warnings ramped up after the collapse of several prominent companies last year, including Sam Bankman-Fried’s FTX,
In a filing on Wednesday, Coinbase said the SEC’s so-called Wells notice concerns aspects of its exchange, including an undefined segment of its listed digital assets as well as staking service Coinbase Earn and Coinbase Wallet. A Wells notice comes at the end of an investigation and companies are given time to rebut the agency’s allegations. Such notices often, but do not always, lead to enforcement actions – either lawsuits or settlements and fines. At the same time, not every potential issue identified in the notice needs to be part of an eventual action.
Coinbase said its products and services will continue to operate as usual for now.
“We are prepared for this disappointing outcome and confident in the legality of our assets and services,” Mr Paul Grewal, chief legal officer of Coinbase, said in a statement. “If needed, we welcome a legal process to provide the clarity we have been advocating for and to demonstrate that the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets.”
The crypto industry has been rattled by the uptick in SEC enforcement actions since the beginning of the year, including a settlement with Coinbase’s rival Kraken
For its part, Coinbase has maintained that the tokens listed on its exchange are not securities and that it has a thorough vetting process. Mr Grewal has also argued that the company’s staking product is very different from the one offered by Kraken, which was the focus of the recent SEC settlement. Coinbase chief executive Brian Armstrong said the company is willing to fight the SEC in court if a resolution cannot be reached.
Kraken agreed to discontinue its programme in the United States without admitting to or denying the SEC’s allegations.
Coinbase shares slumped 12 per cent in post-market trading in New York. Shares of the company have rebounded this year as Bitcoin climbed to more than US$28,000, although the stock is still down more than 70 per cent from its peak in November 2021.
This is not the first time that Coinbase has received a Wells notice. The SEC warned the company in 2021 that it considered the company’s proposed “Lend” product, which would have allowed users to earn interest by lending out their crypto holdings, to be a security. The exchange later canceled the launch.
Coinbase executives have expressed frustration with the SEC’s approach, saying they have made attempts in good faith to work with the regulator and that the company is not clear how to apply the agency’s rules to digital asset trading platforms.
Those frustrations grew after the SEC identified several tokens listed on the exchange as securities, as part of an insider trading case involving a former employee. Shortly after, Bloomberg reported that while Coinbase was not sued as part of that case, the agency was separately investigating the firm over its token listings.
The company also filed a petition for rule-making with the agency last year, which it followed up with a comment on the need for more clarity around staking services. BLOOMBERG
