Crypto exchange Coinbase said it received a ‘Wells Notice’ from the United States Securities and Exchange Commission recommending the regulator take enforcement action.
In a March 22 blog post, Coinbase said the “legal threat” could potentially target the exchange’s staking program Coinbase Earn, listed digital assets, its wallet, or Coinbase Prime services. A Wells Notice letter typically warns a company that the SEC may follow with an enforcement action, but Coinbase provided no details other than “possible violations of securities laws.”
“We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so,” said Coinbase chief legal officer Paul Grewal. “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.”
1/ Today Coinbase received a Wells notice from the SEC focused on staking and asset listings. A Wells notice typically precedes an enforcement action.
— Brian Armstrong (@brian_armstrong) March 22, 2023
The crypto exchange said its products and services would “continue to operate as usual” amid the investigation. Grewal pushed back against the approach often cited by SEC chair Gary Gensler — i.e. “come in and talk to us” — claiming that Coinbase met with SEC representatives “more than 30 times over nine months,” but largely did not receive feedback on its proposals.
“At no point in this investigation has the SEC told us a single specific concern about a single asset on our platform. To move to a Wells notice now, is unusual to say the least.”
Coinbase submitted a petition to the SEC on March 20 in an effort to explain to the regulator staking might not necessarily be universally considered a security. The exchange claimed that none of its listed assets were considered securities under the regulator’s purview, and any potential targeting of its wallet was based on a “misunderstanding of crypto products, assets and services” by the SEC.
The SEC had previously announced a settlement with Kraken in which the cryptocurrency exchange agreed to stop its staking program for U.S. users. News of the Wells Notice also followed the SEC announcing a lawsuit against Justin Sun and several celebrities over the offering, sale, and touting of Tron (TRX) and BitTorrent (BTT).