American bitcoin exchange Coinbase received a notification SEC about the investigation into the listing procedure on the platform and its products – Coinbase Prime, Coinbase Wallet and staking service Coinbase Earn.
Coinbase received a Wells notice from the SEC. After years of asking for reasonable crypto rules, we’re disappointed that the SEC is considering courts over constructive dialogue. But if courts are required, so be it. We’ll defend the rule of law. 1/15 https://t.co/MXpc0RhNj4
— paulgrewal.eth (@iampaulgrewal) March 22, 2023
Coinbase General Counsel Paul Grewal explained in a blog post that the notification does not constitute a formal accusation or initiation of a lawsuit. Such an outcome is possible in the absence of the elimination of claims regarding a possible violation of securities laws.
The company’s shares ended trading on March 22 with a fall of 8.16%. Post-market quotes of securities fell by 12.9%.
“The letter does not contain detailed information that we could respond to. Officials said they had identified potential violations of securities laws, but nothing more.” Greval complained.
The top manager assured that she would continue to work as usual.
The General Counsel emphasized that the platform is confident that the assets and products being traded comply with the law.
“We are ready for litigation to ensure regulatory clarity. […] We are ready to show that the SEC is unfair in its position on digital assets,” he pointed out.
According to Grewal, over the past nine months, company employees have held more than 30 meetings with officials from the Commission.
In January, the SEC informed Coinbase of its intention to prepare enforcement action against the exchange, although officials were expected to provide the promised response to the platform’s proposals the following day.
The exchange has rejected over 90% of the assets that could be included in the listing, regularly inviting the regulator to discuss the correctness of its policy.
Management proposed two different business registration models, spending millions of dollars consulting with lawyers, but received no response.
Grewal recalled that before listing on Nasdaq, Coinbase mentioned staking 57 times on the securities registration form. Then there were no claims from the SEC, since 2021 the product has not changed.
“Coinbase Wallet is a technology, not an exchange, broker or centralized platform,” the expert continued. This misunderstanding of crypto products, assets and services is another example of the need for comprehensive regulation in the US that understands the technology.”Grewal emphasized.
Claims against Coinbase come a month after rival Kraken settled claims regarding a staking program, the offer and sale of which the latter “did not register.” The exchange agreed to close it and pay $30 million as a fine.
The head of the SEC, Gary Gensler, then called on the crypto industry to pay attention to the Kraken story. In an interview with the presenter’s question about what enforcement measures could be applied to other programs like Coinbase Earn, the head of the department replied that the “labels” – credit, income or earnings – do not matter.
Coinbase CEO Brian Armstrong announced his readiness to defend the staking program in court. The top manager expressed confidence that the service cannot be considered as an offer of securities.
The current investigation may also be related to the case of insider trading in crypto assets. Former Coinbase product manager Ishan Wahi pleaded guilty to two counts. In it, the agency qualified nine tokens as “digital securities”.
The community condemned the SEC.
Custodia CEO Caitlin Long has strengthened her belief that the Biden administration is seeking to withdraw all crypto business from the US.
“See also yesterday’s White House economic reportin which all financial innovations are rejected, maintaining the “stability” of traditional banks”, she complained.
IT SHOULD BE CRYSTAL CLEAR BY NOW that the Biden Administration wants all #crypto (even the legit parts of it)—run out of the US See also yesterday’s White House economic report, which dunked on all financial innovation while espousing the “stability” of traditional banks https://t.co/eFZsKpZG15
— Caitlin Long
(@CaitlinLong_) March 22, 2023
The actions of the SEC caused bewilderment in the general partner of Andreessen Horowitz, Chris Dixon.
“From day one, Coinbase has invested heavily to be fully compliant with US laws, even when it forced them to […] lose a competitive advantage compared to other exchanges that chose to take a short cut”, he pointed out.
since day one, @coinbase has invested heavily in being fully compliant with US laws even when it forced them to move slower or lose a competitive edge vs other exchanges that chose to take shortcuts. https://t.co/WieptZxXwx
— cdixon.eth (@cdixon) March 22, 2023
Cinneamhain Ventures partner Adam Cochran welcomed Coinbase’s decision to fight the SEC in court and vowed to “vote with your wallet” using the platform’s products.
Oh PS – if Coinbase does indeed choose to fight the SEC as they are saying they will, then I’m:
-Moving all my purchases to Coinbase
-Moving all my trading to Coinbase
-Delegating to Coinbase staking nodesIf they go to bat for this industry, I’ll vote with my wallet.
— Adam Cochran (adamscochran.eth) (@adamscochran) March 22, 2023
Recall that in March 2023, Gensler suggested that tokens based on the Proof-of-Stake consensus algorithm could be considered securities under US law.
In February, the head of the department hinted at the possibility of recognizing all cryptocurrencies, with the exception of bitcoin, as securities. His stance has been criticized by industry lawyers.
Prior to this, Gensler called the cryptocurrency market centralized. He urged the platforms to apply to the SEC regarding the recognition of an asset as an investment contract. The official also warned of the possible prosecution of unregistered bitcoin exchanges.
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