The Securities and Exchange Commission (SEC) is prepping for official enforcement action against Coinbase – America’s largest cryptocurrency exchange – for selling unregistered securities.
The agency issued a Wells Notice against the exchange on Wednesday, following a slew of other investigations and lawsuits launched against Coinbase’s competitors in recent months.
In an SEC filing, Coinbase explained that the Wells Notice warned of violations of Federal Securities Laws, including the Securities Exchange Act of 1934 and Securities Act of 1933.
Based on discussions with SEC staff, the company believes the SEC is taking issue with Coinbase’s primary spot exchange business, its staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet.
Though a Wells Notice is not a guarantee of a lawsuit, it is a likely indicator of one, which may seek “injunctive relief, disgorgement, and civil penalties.” Paxos, the issuer behind the BUSD stablecoin, was issued a Wells Notice by the SEC for securities law violations last month, which the parties are still working out.
The SEC has warned Coinbase about other intended products in the past, investigated the firm about its listing process, and fined rival exchange Kraken for offering a nearly identical crypto staking service. As such, Coinbase said its been prepared to face legal action from the agency, and even welcomes it.
“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,” tweeted CEO Brian Armstrong regarding the Wells Notice.
Coinbase and its CEO have long held that its company is compliant with securities laws, whether pertaining to its asset listings or staking services. According to Armstrong, the legal process will provide “an open and public forum before an unbiased body” to present that same case.
Critics of the SEC have claimed that the agency has provided no reasonable pathway for firms to register their products with the commission, even if they wish to do so.
After being fined last month, Kraken CEO Jesse Powell mocked the agency for suggesting that the process was as simple as filling out form on a website. Even a member of the commission herself has come to the industry’s defense on this matter, blasting the SEC’s enforcement as “paternalistic and lazy.”
Coinbase’s Chief Legal Officer, Paul Grewal, made similar statements regarding Coinbase in response to the Wells Notice.
“The SEC hasn’t given basically 0 feedback on what to change, or how to register,” he said. “Instead, today we received a Wells notice.”