- Coinbase has received a Wells Notice over its operations
- The notice suggests that legal action is imminent
- The exchange’s legal chief has criticized the agency’s approach, saying it refused to cooperate
Coinbase has been served with a Wells Notice by the Securities and Exchange Commission (SEC), resulting in its legal officer decrying the manner in which the agency has gone about handling the issue. Coinbase’s legal head Paul Grewal penned a blog post to protest that the exchange’s multiple requests for guidance from the SEC, and even its offer of suggestions about how to regulate cryptocurrencies, have all been ignored, only for the SEC to insinuate that it feels Coinbase is breaching securities laws. The news is yet another example of the outsized way in which U.S. authorities are treating the crypto industry in the country, and many believe it is the latest move in a plan to kick crypto out.
Securities Issue Dates Back to Last Year
The suggestion that Coinbase could be on the hook for violation of securities laws dates back to July last year when Bloomberg reported that the exchange was being investigated because it improperly let U.S. citizens trade digital assets that should have been registered as securities. This, and other potential infractions, has led the SEC to issue a Wells Notice to Coinbase, informing it that SEC staff believe there is enough evidence to warrant a charge in the not too distant future.
Grewal reported that the notice is slim on details, saying that it referred to “an unspecified portion of our listed digital assets, our staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet”, and added that it “does not provide a lot of information for us to respond to.” Grewal then went on to complain that Coinbase’s efforts to comply have been ignored:
We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so. Today’s Wells notice also comes after Coinbase provided multiple proposals to the SEC about registration over the course of months, all of which the SEC ultimately refused to respond to.
This is doubly frustrating for Grewal and Coinbase as it comes after SEC Chair Gary Gensler’s public appeals for crypto companies to engage with the SEC, as he said in September 2021:
Talk to us, come in. There are a lot of platforms that are in operation today that would do better engaging and instead there is a bit of…begging for forgiveness rather than asking for permission.
Coinbase did this with Coinbase Lend that same year and were again ignored and issued with a Wells Notice over their plans, causing them to ditch its launch, and the same issue seems to have reared its head.
Negotiations Go Nowhere
Grewal went on to explain in detail the nature of the discussions between Coinbase and the SEC, noting how they met more than 30 times over nine months in 2022, with the SEC raising no objections and offering no feedback over the exchange’s coin listing process, but eventually choosing enforcement over dialogue in January of this year regarding Coinbase’s alleged listing of securities. Grewal’s frustration is palpable when he explains how the SEC asked Coinbase for its advice on how to establish a crypto exchange registry and yet seemingly has no interest in making one, instead choosing to punish after the fact.
Grewal added that Coinbase intends to fight any action that emerges from the Wells Notice, and indeed the actions of the SEC have been taken by prominent members of the crypto community as more evidence that U.S. authorities are trying to shut down the crypto market in the U.S. rather than creating a safe, regulated environment. Wall Street veteran and founder and CEO of Custodia Bank Caitlin Long took to Twitter to opine that the action is another sign that the Biden administration wants to run crypto out of the U.S.:
GOTTA BE HONEST as someone who hasn’t been afraid to call balls & strikes. If any of this SEC action predates Coinbase’s IPO, then the SEC stepped in it. The SEC’s remit is investor protection. How did it protect investors to let a company IPO if it was violating securities laws?
— Caitlin Long 🔑⚡️🟠 (@CaitlinLong_) March 22, 2023
Analyst Dylan LeClair also suggested that this action is the latest move in a a long term plan:
They’re going to attempt to limit/block the exit ramps to bitcoin exchanges as the banking system gets run.
It’s starting.
— Dylan LeClair 🟠 (@DylanLeClair_) March 22, 2023
Without formal charges Coinbase has nothing to fight back against, but it seems that it won’t be long until these charges are made and the SEC can see how the American legal system feels about its actions.
