Recently, the United States Securities and Exchange Commission (SEC) has been on an enforcement spree. Now the crypto firm to be under the regulator’s radar is the crypto exchange Coinbase.
On Wednesday, Coinbase revealed in a filing that it has received a Wells Notice from the regulator. The Wells notice means that the SEC has made a preliminary determination that will see it recommend an enforcement action against Coinbase. It also enables firms to respond to the regulator with an explanation as to why the agency shouldn’t proceed with legal action. Hence, it is not a final declaration of enforcement action.
Sources reveal that if the regulator does initiate legal action, it will most likely allege that the firm violated federal securities laws as it has done with other firms previously. According to the text in the filing, the upcoming allegations concern parts of Coinbase’s main trading platform (ie. spot market), along with other services such as Coinbase Earn, Coinbase Prime, and Coinbase Wallet.
The firm publicly acknowledged the notice on its blog and also confirmed that the above areas of service are under scrutiny. Notably, Coinbase alleged that the notice does not include enough information for it to provide a more detailed response.
Additionally, the company asserted that the regulator refused to identify particular cryptocurrencies and assets that may be considered securities. It also said that the regulator further refused to respond to its registration proposals in recent months.
In its blog, Coinbase also expressed its confidence and said that its services are legitimate and it “welcomes a legal process.” However, this phrasing does not exclude the possibility of a settlement.
The phrase stands in clear contrast to personal statements from Coinbase executives that suggest that the company intends to fight the SEC in court. Brian Armstrong, CEO of Coinbase tweeted that his company intends to show the bias of the regulator and that the SEC “has not been fair, reasonable, or even demonstrated a seriousness of purpose.”
Simultaneously, Paul Grewal, CLO of Coinbase, said that the company will “avail [itself] of the court system to finally start to get some clarity for the crypto industry.”
Notably, as stated in the company’s blog, it is also possible that Coinbase might not face charges ahead as the Wells notice “is not a formal charge or lawsuit, [but] can lead to one.” However, crypto companies to date have been mostly unsuccessful in fighting the regulator, so the SEC doesn’t have much on stake to refrain from filing charges.
The SEC has been carrying out enforcement actions against crypto entities one after the other, something a lot of personalities have disapproved of. In February, the SEC targeted Paxos for selling unregistered security. The firm initially said that it categorically disagreed with the regulator but later confirmed that it was having talks.
At the DC Blockchain Summit, French Hill, a Republican lawmaker, slammed the US Congress regarding cryptocurrency regulations. He said that the crypto businesses which wish to settle in the country would be forced to shift and the regulating agencies and their stringent approach would be responsible for this. Blockchain Association’s CEO also flagged the behavior of the SEC and requested lawmakers to interfere in the crypto regulations urgently.