The Securities and Exchange Commission has told Coinbase Global it plans to take enforcement action against the company, escalating its crackdown on digital-currency firms by targeting the biggest US crypto exchange, Coinbase said on Wednesday.
Coinbase said it had received a letter from the SEC known as a Wells notice, in which regulators say they believe companies or individuals violated investor-protection laws. The notices aren’t final because the agency’s commissioners must authorize any lawsuits or enforcement settlements.
By warning Coinbase about a potential lawsuit, the SEC is setting its sights on one of the biggest names in crypto, a publicly traded company that has helped bring tens of millions of customers into the digital-currency markets since it was founded in 2012.
A lawsuit would represent SEC chair Gary Genslers biggest step to assert his agency’s jurisdiction over crypto. If Coinbase prevailed in a lawsuit, it would embolden the crypto industry’s claims that Mr. Gensler has overreached and that virtual currencies shouldn’t be subject to US securities laws.
“The notice concerned several aspects of Coinbase’s business, including assets listed on its crypto exchange, its staking service Coinbase Earn and its wallet service,” the company said.
Coinbase Earn is a program that allows customers to earn rewards on their digital assets by staking, a process in which crypto investors lock up their coins to facilitate transactions on the underlying blockchain network. A crypto wallet holds digital tokens for users.
“We are prepared for this disappointing outcome and confident in the legality of our assets and services,” Coinbase chief legal officer Paul Grewal said.
“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.”
An SEC spokeswoman declined to comment.
Coinbases stock fell almost 12 per cent after hours after falling 8 per cent in regular trading. Crypto-related stocks and bitcoin have rallied in recent weeks, but turned negative following the Federal Reserves rate increase announcement on Wednesday.
An SEC lawsuit against a crypto exchange carries potentially existential consequences since regulators can seek injunctions that would block the company from activities the SEC argues violate the law. Despite a years-long crackdown on crypto sales and trading, the SEC has sued only a few crypto exchanges.
Coinbases stock fell almost 12 per cent after hours after falling 8 per cent in regular trading. Crypto-related stocks and bitcoin have rallied in recent weeks, but turned negative following the Federal Reserves rate increase announcement on Wednesday.
An SEC lawsuit against a crypto exchange carries potentially existential consequences since regulators can seek injunctions that would block the company from activities the SEC argues violate the law. Despite a years-long crackdown on crypto sales and trading, the SEC has sued only a few crypto exchanges.
In a message he posted to Twitter late on Wednesday, Coinbase CEO Brian Armstrong referred to the change in the SECs position towards his company over the past two years. The SEC allowed Coinbase to go public in 2021, he wrote, including after reviewing its disclosures that “clearly explained our asset listing process and included 57 references to staking.”
Coinbase shares debuted on public markets on April 14, 2021, three days before Mr Gensler was sworn in as SEC chair. While the SEC took enforcement actions against crypto companies during the Trump administration, the agency has gone after bigger companies since Mr Gensler took over.