The Securities and Exchange Commission sent Coinbase a Wells notice claiming that the exchange may be violating securities law. However, Coinbase responded saying that it was only a misunderstanding by the US SEC officials.
The SEC with Coinbase
Coinbase claims that none of its listed assets were considered securities. Regardless, the SEC still sends a Wells notice to the exchange, which means that a regulator may take enforcement action against Coinbase.
The SEC might target Coinbase Earn, which is the exchange's staking program, listed digital assets, wallet, or Coinbase Prime services, as mentioned in Coin Telegraph. Coinbase asked the SEC to identify which assets in the platform were believed to be securities.
However, according to Coinbase chief legal officer Paul Grewal, they declined the request. Grewal added that the notice comes after Coinbase provided many proposals about registration in the previous months, all of which the SEC did not respond to.
Although the Wells notice does not necessarily mean that there are legal charges or lawsuits, the company says that it may lead to one. Coinbase assures that the operations are running as usual and there will be no changes in their services and products.
The exchange also mentioned that they were prepared for the "disappointing development" and are confident in the legality of its assets and services. It was also pointed out that the SEC has not been fair or reasonable in its engagements with digital assets.
Why Coinbase Failed to Register
The SEC was said to have provided Coinbase with the option to register parts of their business with the SEC as a potential resolution. The company was even asked for insights on what the registration of Coinbase would look like.
This was due to the SEC not having a proper process for a cryptocurrency exchange to register. The company developed and proposed registration models spending millions in the process, but received no feedback from the Commission.
Coinbase stated that it had met with the SEC more than 30 times in the course of nine months, and in all those times, they were the only ones talking. The SEC rescheduled the feedback on the exchange's proposals from December 2022 to January 2023, only to cancel.
Instead, the SEC decided that it would go ahead with the enforcement investigation. Coinbase has provided the documents needed as well as two witnesses for testimony, one for the company's staking services and the other for its basic operations.
The exchange pointed out that the SEC should develop a regulatory framework for crypto instead of doing so through enforcement. They have formally asked the Commission to create rules for the crypto industry and filed a petition last summer.
The company claims that the SEC needs to clarify its view of staking services and its lack of notice, so much so that Coinbase submitted another letter in support of the petition. This was two days before the company received the Wells notice that mentioned its staking services.
