The U.S. Securities and Exchange Commission (SEC) sent Coinbase a Wells Notice alleging possible securities law violations on March 22nd, according to a blog post.
These alleged potential violations allegedly relate to digital assets listed by Coinbase as well as different services and products like Coinbase Earn, Coinbase Prime, and Coinbase Wallet.
The prospective defendant will receive a formal letter from securities authorities called a “Wells Notice” informing them of impending accusations or enforcement actions.
This is also not entirely unexpected, given there were rumors that the SEC was looking into Coinbase’s business practices and the listing of cryptocurrencies for possible securities breaches back in mid-2022.
To reassure users that nothing is changing right now, the company wrote in a blog post that “Coinbase goods and services will continue to work as usual.”
Brian Armstrong, the CEO of Coinbase, tweeted to inform consumers of the Wells letter and that enforcement action is anticipated:
Tell us the rules and we will follow them. Give us an actual path to register, and we will register the parts of our business that need registering. In the meantime, the U.S. cannot afford for regulators to continue to threaten the good actors in the crypto industry for doing the same legal and compliant things they’ve always done. This unfair approach will only drive innovation, jobs, and the entire industry overseas. At our core, we are the very same company that we were on April 14, 2021 when we became a public company at the end of the lengthy process with the SEC itself. We remain confident in the legality of our assets and services, and 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. In the meantime, Coinbase will continue to do what we do best: updating the financial system by building the most trusted products and services to advance our mission of creating more economic freedom and opportunity around the world.
– Paul Grewal, Chief Legal Officer of Coinbase
Paul Grewal, the chief legal officer of Coinbase, makes several excellent points in the blog post, including the fact that the SEC only recently began considering cryptocurrencies to be securities and the easy fact that it examined Coinbase’s business procedures in 2021 without expressing any concerns.
Another crucial point to keep in mind about the entire scenario is that Coinbase has repeatedly contacted the SEC for regulatory guidance but has only ever received silence in return.
The SEC appears primarily interested in imposing sanctions, rather than collaborating with crypto firms to create a thorough structure for the market.
Grewal even mentioned the recent VoyagercBinance case, which I have extensively covered. In that instance, Judge Michael Wiles verbally reprimanded the SEC and CFTC for effectively wasting the court’s time by being unable to articulate their legal arguments.
I never wanted to see this happen to Coinbase, but after hearing this news, I can’t help but be worried.
This SEC notice appeared out of nowhere and will undoubtedly cause problems, at least in the near term, just as Coinbase was gaining momentum thanks to recent developments like its cooperation with Brazil and the introduction of the BASE network.
I can definitely see Coinbase’s stock price plummeting, and I anticipate a wave of cryptocurrency users withdrawing their funds from the exchange in order to be safe and secure.
In the end, I genuinely believe the SEC’s argument is unconvincing, and if it comes down to it, Coinbase will win.
What do you think about this news?
Do you believe that this upcoming enforcement action may cause Coinbase to fail?
What exchange, if any, do you believe would dominate the US market if Coinbase were to fail?