SEC Issues Coinbase a Wells Notice For Potential Securities Violations

March 23, 2023 11:34 am Comments

It was just revealed that the SEC has issued Coinbase a Wells Notice which basically warns the company that they may be potentially violating securities regulations.

As a result of the news, Coinbase stock has declined by around 12% in a single day as the warning could affect multiple aspects of Coinbase’s business such as Coinbase Wallet and Coinbase Earn.

It is unsure if the SEC will continue to take any additional enforcement action after this Wells Notice, but this is not the first time that Coinbase has faced regulatory pressure.

This is likely why Coinbase had previously announced that they will be launching an overseas exchange as a way to diversify their operations and to not be overexposed to the strict regulations in the US.

Based on historical data, a Wells Notice is typically the last step before the SEC actually initiates a formal charge so there is a significant chance that this could happen.

CNBC reports:

A Wells notice is typically one of the final steps before the SEC formally issues charges. It generally lays out the framework of the regulatory argument and offers the potentially accused an opportunity to rebut the SEC’s claims.

Coinbase described the investigation as “cursory,” and said the Wells notice provided relatively little information about potential violations.

“Although we don’t take this development lightly, we are very confident in the way we run our business – the same business we presented to the SEC in order for us to become a public company in 2021,” Coinbase Chief Legal Officer Paul Grewal said in a blog post.

The company said that until the resolution of any legal processes, the exchange’s offerings would continue to operate as usual.

In recent months, the SEC has taken an aggressive stance against many crypto exchanges such as Gemini, Kraken, and now Coinbase.

Brian Armstrong, CEO of Coinbase, stated that the company is prepared for the worst case scenario where the SEC declares that many of the listed assets are securities.

If the SEC continues such actions, investors and speculators believe that this will continue to drive more crypto firms overseas and will cause the US to lose crypto talent.

This once again highlights the need for clear regulatory guidelines for the crypto industry and regulatory actions like these will ultimately limit the number of digital assets that US citizens will have access to.

Coinbase is continuing to operate as usual after this Wells Notice and it remains to be seen what will happen after.

Yahoo concludes:

The SEC has been ratcheting up efforts to crack down on the crypto industry since the implosion of FTX last year, and staking services such as Coinbase’s Earn are under increased scrutiny for not being registered.

Staking is a process in which cryptocurrency holders volunteer to take part in validating transactions on the blockchain. These products often offer customers eye-popping yields.

Last month, Kraken agreed to shut down its U.S. cryptocurrency staking service and pay $30 million in penalties to settle SEC charges that it failed to register the program.

Earlier in the day, the SEC charged Chinese cryptocurrency entrepreneur Justin Sun with fraud, and accused eight celebrities including actress Lindsay Lohan with illegally promoting his crypto assets.

Coinbase said its services continued to operate as usual after the notice was issued.

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