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SEC Issues Wells Notice Against Coinbase for Listing Unregistered Securities

SEC Issues Wells Notice Against Coinbase for Listing Unregistered Securities

The Securities and Exchange Commission (SEC) has issued a Wells Notice against Coinbase, the largest cryptocurrency exchange in America, for allegedly selling unregistered securities. This comes after an array of investigations and lawsuits launched against other competitors of Coinbase in recent months.

Coinbase VS SEC

Coinbase revealed that the Wells Notice warned of violations of Federal Securities Laws such as the Securities Exchange Act of 1934 and the Securities Act of 1933. Based on discussions with SEC staff, Coinbase believes the agency is concerned about its primary spot exchange business, staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet.

Although a Wells Notice is not a guarantee of a lawsuit, it indicates one is likely, which may result in “injunctive relief, disgorgement, and civil penalties.” Last month, Paxos, the issuer behind BUSD stablecoin, was issued a Wells Notice by the SEC for securities law violations, and the parties are still working on the issue.

The SEC has previously warned Coinbase about other intended products, scrutinized the firm about its listing process, and fined rival exchange Kraken for providing a nearly identical crypto staking service. As a result, Coinbase has been prepared to face legal action from the agency and even welcomes it, according to its CEO Brian Armstrong.

“While we understand that this is all part of the journey to reforming our financial system, we are right on the law, confident in the facts, and welcome the opportunity for Coinbase (and by extension the broader crypto community) to get before a court,” tweeted Armstrong regarding the Wells Notice.

Coinbase and its CEO have consistently claimed that the company adheres to securities laws, whether it pertains to asset listings or staking services. According to Armstrong, the legal process will provide “an open and public forum before an unbiased body” to present the same case.

Difficulty to Register

Critics of the SEC have contended that the agency has not provided a reasonable pathway for firms to register their products with the commission, even if they desire to do so. Jesse Powell, CEO of Kraken, mocked the agency last month after being fined, for suggesting that the process was as simple as filling out a form on a website. Even a commission member criticized the SEC’s enforcement as “paternalistic and lazy” on this issue.

In response to the Wells Notice, Coinbase’s Chief Legal Officer, Paul Grewal, made similar statements regarding Coinbase, stating, “The SEC hasn’t given basically 0 feedback on what to change, or how to register. Instead, today we received a Wells notice.”