Crypto exchange Coinbase will likely be hit with a Securities and Exchange Commission enforcement action, following the filing of a Wells notice by the regulator’s staff Wednesday.
The notice addresses aspects of the company’s spot market, as well as its Earn, Prime and Wallet products.
Regulators and lawmakers have intensified their interest in the crypto world over the past year, following the bankruptcies of popular exchanges Celsius, Voyager, and FTX. Industry turmoil began almost a year ago with the collapse of Terra and Luna, interconnected stablecoins, with several dominos falling since then.
Do Kwon, the founder of Terra, was arrested Thursday in Montenegro after nearly a year on the lam. He faces both criminal and civil charges in the U.S. tied to the Terra collapse, which resulted in the evaporation of billions of dollars in digital assets overnight.
Staking services, in particular — the process in which crypto customers participate in validating transactions on the blockchain in exchange for high yields — have caught heat from regulators.
Crypto exchange Kraken paid $30 million in February to settle SEC allegations that it violated securities laws by not registering the program. As part of the settlement, Kraken agreed to shut down its staking service in the U.S.
Coinbase’s Earn, Prime, and Wallet products are staking services.
Coinbase CEO Brian Armstrong took to Twitter on Wednesday to discuss the attention his company has received from the SEC, as well as crypto regulation overall.
“Two years ago the SEC reviewed our business in detail and approved Coinbase to go public. Our S1 clearly explained our asset listing process and included 57 references to staking. Coinbase runs a rigorous asset review process and has rejected more than 90% of assets that have applied to be listed on the platform,” Armstrong tweeted. “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.”
“We are proud to stand up for our customers and the industry in these moments,” he continued. “Going forward the legal process will provide an open and public forum before an unbiased body where we will be able to make clear for all to see that the SEC simply has not been fair, reasonable, or even demonstrated a seriousness of purpose when it comes to its engagement on digital assets.
The company said on its blog that it’s met with the SEC more than 30 times over the course of nine months to resolve an investigation into unregistered aspects of the business, but that the SEC “will not let crypto ‘come in and register.’”
“We tried,” the company wrote.
Following Coinbase’s request for the SEC to provide feedback on some of its proposals, the SEC agreed to meet in January. However, Coinbase alleged that just a day before the scheduled meeting, “the SEC canceled on us and told us they would be shifting back to an enforcement investigation. We now understand that there is disagreement within the Commission itself on how to proceed with a registration path.”
Moving forward, Armstrong said he was “excited to work with all governments and regulators” working to create clear regulations on the crypto world.
The SEC declined to comment on Coinbase’s Wells notice or the possibility of an enforcement action against the company.