Coinbase is the latest crypto company to come under regulatory scrutiny

The US Securities and Exchanges Commission has notified the crypto exchange of a potential lawsuit.

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In the the public eye.
In the the public eye.
Photo: Shannon Stapleton (Reuters)

The Securities and Exchanges Commission (SEC) has sent Coinbase a letter warning of possible legal action.

Coinbase on Wednesday (Mar. 22) said it had received a Wells notice from the SEC, which the agency uses to notify a company of a potential lawsuit. Companies can respond, and the agency’s commissioners have at least six months to decide any lawsuits or enforcement settlements.


The Wells Notice targets several aspects of Coinbase’s business, including assets listed on its crypto exchange, its staking service Coinbase Earn and its wallet service. It is the result of a probe that began in mid-2022, before the FTX collapse.

The cryptocurrency exchange’s co-founder and CEO Brian Armstrong wrote that the SEC “reviewed our business in detail and approved Coinbase to go public” two years ago and Coinbase is “right on the law” and “confident in the facts.” By setting the ball rolling on a possible lawsuit, the SEC has “not been fair, reasonable, or even demonstrated a seriousness of purpose when it comes to its engagement on digital assets,” he added.


Coinbase has amassed a massive user base of 110 million over the last decade. If the SEC follows through with a lawsuit, the exchange is planning to use it as an opportunity to clear up the confusion around crypto regulation. “Coinbase doesn’t list securities,” Coinbase chief legal officer Paul Grewal wrote in a blog post.

Coinbase’s legal compliance attempts, by the digits

More than 90%: Share of assets that have applied to be listed on the platform that Coinbase says it has rejected after a rigorous asset review process.

Millions of dollars: Money Coinbase says it spent on legal support to develop and build two different models for crypto exchanges to register with the SEC. The SEC neither gave feedback on this, nor asked questions about any asset on Coinbase’s platform, Grewal claims.

More than 30: Times Coinbase met with the SEC over nine months. “We were doing all of the talking,” Grewal recalled. The agency was meant to provide feedback in a January 2023 meeting, but canceled the day before that was due.


57: Times Coinbase’s “staking services” were referred to in the S-1 the SEC reviewed in 2021 before the company went public, which are now part of the Wells notice. But that was also before SEC chief Gary Gensler, who is chasing after crypto crimes, took the helm.

Quotable: The US needs better crypto rules

“Tell us the rules and we will follow them. Give us an actual path to register, and we will register the parts of our business that need registering. In the meantime, the US cannot afford for regulators to continue to threaten the good actors in the crypto industry for doing the same legal and compliant things they’ve always done. This unfair approach will only drive innovation, jobs, and the entire industry overseas.” -Coinbase’s chief legal officer Paul Grewal


The “necessary work” SEC hasn’t done, according to Coinbase’s Grewal

🔎 “Identified a problem that securities laws can solve”

🗣 “Engaged the public”

✋ “Solicited experts”

💰 “Described the economic impact from its action”

Company of interest: Kraken

Last month, rival crypto exchange Kraken agreed to stop offering staking services to US customers and pay $30 million in penalties to the SEC as part of a settlement with the agency.


Companies like Coinbase could try to settle if they can limit the damage to their business, Marc Fagel, a former director of the SEC’s San Francisco office, told the Wall Street Journal. As of now, Coinbase looks ready for a legal fight. “If necessary, we welcome the opportunity for Coinbase and the broader crypto community to get clarity in court,” Grewal wrote.

One more thing: Why SEC went after Tron backers such as Lindsay Lohan, Ne-Yo, and others

While Coinbase shared details about the Wells notice, the SEC launched legal action against crypto entrepreneur Justin Sun. The agency targeted Sun and three of his companies, Tron, BitTorrent, and Rainberry (formerly BitTorrent), over “the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT).”


As part of that legal action, the SEC also charged eight celebrities, including Lindsay Lohan, Vine-creator-turned-professional-boxer Jake Paul, and singers Ne-Yo and Akon, “for illegally touting TRX and/or BTT without disclosing that they were compensated for doing so and the amount of their compensation” at Sun’s behest. Six of the celebrities paid more than $400,000 in disgorgement, interest, and penalties to settle the charges, without admitting or denying the charges.

“The SEC’s civil complaint earlier today is just the latest example of actions it has taken against well known players in the blockchain and crypto space,” Sun responded. “We believe the complaint lacks merit, and in the meantime will continue building the most decentralized financial system.”


For now, even for Coinbase, it’s business as usual.

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