America’s leading cryptocurrency exchange, Coinbase, is facing official enforcement action by the Securities and Exchange Commission (SEC) for selling unregistered securities. The SEC issued a Wells Notice against the exchange on Wednesday, marking the beginning of a legal battle between Coinbase and the regulatory agency.
Coinbase is the largest cryptocurrency exchange in the US, and the SEC has been investigating its operations for some time. The agency has warned Coinbase about its listing process in the past and fined rival exchange Kraken for offering a nearly identical crypto staking service.
In an SEC filing, Coinbase explained that the Wells Notice warned of violations of Federal Securities Laws, including the Securities Exchange Act of 1934 and Securities Act of 1933. The company believes the SEC is taking issue with Coinbase’s primary spot exchange business, its staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet.
Although a Wells Notice is not a guarantee of a lawsuit, it is a likely indicator of one, which may seek “injunctive relief, disgorgement, and civil penalties.” The SEC issued a Wells Notice to Paxos, the issuer behind the BUSD stablecoin, last month for securities law violations, which the parties are still working out.
Coinbase and its CEO Tweeted,
3/ 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.— Brian Armstrong 🛡️ (@brian_armstrong) March 22, 2023
Critics of the SEC have claimed that the agency has provided no reasonable pathway for firms to register their products with the commission, even if they wish to do so. Coinbase’s Chief Legal Officer, Paul Grewal, made similar statements in response to the Wells Notice, stating that “the SEC hasn’t given basically 0 feedback on what to change or how to register.”
This legal battle between Coinbase and the SEC is expected to be closely watched by the broader crypto community. As the leading cryptocurrency exchange in the US, Coinbase’s fate may set a precedent for other crypto companies in the country.
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