The company said on Wednesday that cryptocurrency exchange Coinbase (COIN) may soon face enforcement action related to its listing of potential unregistered securities.
Coinbase revealed that the US Securities and Exchange Commission has alleged that the US-based company may have been operating in violation of securities laws in running its exchange and storage services. The regulator targeted Coinbase with a so-called Wells notice that notifies the company that the agency plans future action that could include an injunction or a cease and desist without specifying exactly which activity it found to be infringing.
“If necessary, we welcome legal action to provide the clarity we advocate for and to demonstrate that the SEC has not been fair or reasonable when it comes to its involvement in digital assets,” said Paul Grewal, Coinbase’s chief legal officer, in a statement. Until then, it’s business as usual.”
“The company believes these potential enforcement actions will relate to aspects of the company’s spot market, the Coinbase Earn Service, Coinbase Prime, and Coinbase Wallet,” Coinbase said in a filing with the Securities and Exchange Commission, citing its conversations with agency employees.
the notice Preliminary, and these warnings do not always lead to enforcement action. The company has until March 29 to notify the agency if it intends to refute findings by the SEC’s law enforcement division that indicated a possible violation of securities law.
In a blog post WednesdayCoinbase further indicated that its digital asset listing process was not the subject of the notice.
Coinbase CEO Brian Armstrong also tweeted about Wells’ notice on Wednesday.
A person familiar with the situation told CoinDesk that the exchange has engaged in more than 60 different discussions with the federal regulator on questions about digital asset registration and listing, and the agency declined to provide any advice or answers to the questions. Issues discussed included defining the right market structure and identifying assets that could be listed.
Coinbase has publicly criticized the SEC for what it calls an opaque regulatory structure, and petitioned the regulator in July to clarify how digital assets can fit under securities laws.
For his part, SEC Chairman Gary Gensler has said on multiple occasions that he believes cryptocurrency exchanges — including Coinbase specifically — operate as unregistered securities exchanges in the United States, pointing to the number of tokens they list and arguing that the vast majority of these are. Similar to stock.
Coinbase shares fell more than 11% in after-hours Wednesday after the news was released.
Wells’ notice on Wednesday came the same day the Securities and Exchange Commission (SEC) filed a lawsuit against Tron founder Justin Sun over allegations that TRX and BTT tokens are unregistered securities (among other charges).
Update (March 22, 2023, 21:31 UTC): Adds additional details.
Update (March 22, 2023, 21:53 UTC): Adds Armstrong’s tweet and share price information.
Update (March 22, 2023, 22:20 UTC): Adds information from the SEC.
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