Potential violations of securities law by Coinbase may warrant action from the SEC

By: Henry Felix

Potential violations of securities law by Coinbase may warrant action from the SEC

March 23, 2023 6:00 AM

The cryptocurrency exchange said that the United States Securities and Exchange Commission was "misunderstanding" its listings and so had no basis for pursuing legal action against its wallet.

Coinbase reported receiving a Wells notice from the United States Securities and Exchange Commission, which suggests the SEC initiate enforcement action.

Coinbase stated in a blog post published on March 22 that the "legal threat" might affect the exchange's staking program, Coinbase Earn, as well as listed digital assets, the wallet, and the Coinbase Prime service. Coinbase's Wells notification letter only referred to "potential violations of securities laws," which is vague and usually precedes SEC enforcement action.

According to Paul Grewal, Coinbase's chief legal officer, "we asked the SEC expressly to identify which assets on our platforms they feel may be securities," but the SEC refuses to do so. To add insult to injury, "today's Wells notice also comes after Coinbase offered various suggestions to the SEC for registration over the course of months, all of which the SEC eventually failed to react to,"


The cryptocurrency exchange assured customers that "business as usual" would be maintained despite the probe. Grewal disagreed with SEC Chair Gary Gensler's favored method of "come in and talk to us," saying that Coinbase had met with SEC personnel "more than 30 times over 9 months" and received little to no response about its action plan.

"As of this point in the investigation, the SEC has not raised any specific concerns with us about any asset on our platform. The timing of the switch to a Wells notice is, to put it mildly, unexpected."

On March 20th, Coinbase filed a petition with the SEC to argue that staking should not be automatically classified as a security. The platform said that the SEC misunderstood "crypto goods, assets, and services" and that none of the listed assets fell under the regulator's scope of securities.

Previously, the SEC had announced a settlement with Kraken, wherein the exchange had agreed to end its staking program for U.S. users. The SEC case against Justin Sun and numerous celebrities over the offering, sale, and promotion of Tron (TRX) and BitTorrent preceded the Wells notice's public release (BTT).