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- 1 SEC sent a pre-regulatory action notice to Coinbase, citing potential violations.
- 2 Coinbase pointed out several services under scrutiny yet stated them fine.
- 3 COIN stock fell more than 8% yesterday and up to 12% in the extended trading session.
Coinbase and SEC are in confrontation after the US financial regulator sent a Wells notice to the company. The instance of the leading crypto exchange in the US was enough to send chills across the industry. Though the company ensured no potential threat to the business and said operations to go on as usual, the market did not take it. Coinbase stock price tumbled by over 8% in the last trading session in the aftermath of the notice.
Certain Coinbase Products On SEC’s Target
Reuters reported the United States Securities and Exchange Commission has put up a warning to sue Coinbase Global Inc. The agency’s proceedings came in the wake of some of the company’s products. The regulator-issued Wells notice is said to be considered a formal declaration of putting up potential enforcement action in the future.
Coinbase noted in its regulatory filing, as per CNBC, that the “potential enforcement actions” of the regulatory agency would be related to the company’s particular products. These could be its spot market and staking service dubbed Coinbase Earn, along with other services like Coinbase Prime and Wallet.
As far as the “potential civil action” is concerned, Coinbase expects it to be “injunctive relief, disgorgement, and civil penalties.”
Not long before, the crypto exchange voluntarily petitioned the SEC in defense of crypto staking services and urged them to take careful measures.
Surprise Reaction of Proactive Action
TheCoinRepublic reported Coinbase publishing a “Petition for Rulemaking” to the SEC on Monday, March 23. Over a hundred pages of documents explained crypto staking in detail and made efforts not to be treated as a security. By putting several arguments, it supports the claim that staking does not pass the mandatory Howey test.
Following last year’s chaos in the broader crypto industry, the US regulatory watchdog has increased its scrutiny over the largely unregulated market. From failing well-established cryptocurrencies Terra’s native crypto asset LUNA and stablecoin UST, crypto lenders Celsius and Voyager to the FTX fiasco, the industry had gone through a lot. Billions of dollars of investors went in vain and made the regulator take action.
Coinbase is the second crypto entity this year to receive a Wells notice. Earlier, the stablecoin issuer firm Paxos also received a similar treatment. While crypto exchange Kraken had already witnessed the wrath over its staking services offering and had to pay 30 million USD worth fines for past offerings, which the regulator treated as an unregistered security.
“Company is Still the Same,” Says Chief Legal Officer
Primarily, Wells notice acts as prior steps from the SEC before imposing formal charges over any entity. It consists of a framework citing regulatory arguments and also acts as an offer to the alleged accused to invalidate the regulator’s claim.
According to Coinbase, the regulatory investigation is “cursory”, and the notice had little information regarding the said violations. Chief Legal Officer of the company, Paul Grewal, noted that though the company took the actions seriously, they are confident in their business practices. The business is still the same as it was presented in the SEC’s order for becoming a public company in 2021.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
