Securities Charges Alerted by Coinbase SEC

In this photo illustration, the Coinbase logo is displayed on a smartphone screen.

Raphael Henrique | SOPA Images | Lightrocket | Good pictures

The Securities and Exchange Commission issued a Wells notice to crypto exchange Coinbase, warning the company of potential violations of US securities laws.

Coinbase shares fell nearly 12% in extended trading after Wednesday’s news, adding to an 8.16% drop in regular trading hours.

“Based on discussions with staff, the company believes these potential enforcement actions are related to features of the company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet,” Coinbase said in a regulatory filing. “A possible civil action may seek injunctive relief, disgorgement and civil penalties.”

The SEC has stepped up its enforcement of the crypto industry, cracking down on companies and schemes the regulator has accused of trading unregistered securities. Reports of an SEC probe into Coinbase first surfaced in mid-2022.

In the months leading up to FTX’s fall in November, Crypto markets were reeling from interest rates and a broader shift away from risk.

A Wells Notice is typically one of the final steps in the SEC formally disclosing charges. It generally sets the framework for a regulatory argument and gives potential defendants an opportunity to rebut the SEC’s claims.

Coinbase described the investigation as “conceptual” and said the Wells notice provided relatively little information about potential violations.

“While we don’t take this development for granted, we are very confident in the way we conduct our business — the same business we filed with the SEC to become a public company in 2021,” Coinbase Chief Legal Officer Paul Grewal said. said In a blog post.

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Until any legal proceedings are resolved, the exchange’s offerings will continue to operate as usual, the company said.

Coinbase executives, including founder and CEO Brian Armstrong, have pushed back against perceived overreach by the SEC, which has moved aggressively against the crypto sector since FTX’s collapse. At the direction of SEC Chairman Gary Gensler, Gemini has issued regulatory enforcement actions against several heavyweights, including Genesis, TRON executive Justin Sun, Do Kwon, and crypto exchange Kraken.

“We are prepared for this disappointing decision and remain confident in the legitimacy of our assets and services,” Grewal said in a statement. “If necessary, we welcome a legal process to provide the clarity we advocate and demonstrate that the SEC is neither reasonable nor fair when it comes to its involvement in digital assets.”

The SEC sent a Wells notice to stablecoin issuer Paxos in February. “We will engage with the SEC staff on this issue and are prepared to aggressively litigate if necessary,” a Paxos spokesperson told CNBC at the time.

Coinbase is seeking further regulatory clarity, Grewal said.

Tell us the rules and we will follow them, he said. “Give us a real path to registration and we will register the parts of our business that need to be registered.”

See: Blockchain Data Institute Says Regulatory Clarity Is Important in US Crypto Markets

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