Coinbase Expects Enforcement Action amid SEC's Wells Notice

On Wednesday, Coinbase (NASDAQ: COIN) disclosed the possibilities of potential regulatory action against it as the US federal securities watchdog sent a so-called Wells notice to the crypto exchange.

SEC Sends Wells Notice to Coinbase

In the notice, the Securities and Exchange Commission (SEC) notified that the Nasdaq-listed crypto exchange has been violating the US securities law for offering unregistered securities. As such, the regulator plans further actions against Coinbase that may include an injunction or a cease-and-desist letter.

However, details remain scarce in the notice. In addition, it is unclear that the regulator is pointing out which specific activity of Coinbase violates the country's laws.

"Based on discussions with the Staff, the Company believes these potential enforcement actions would relate to aspects of the Company's spot market, staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet," Coinbase stated in a regulatory filing. "The potential civil action may seek injunctive relief, disgorgement, and civil penalties."

Wells notice is preliminary and only informs about the regulator's findings against a company that might lead to enforcement actions. The SEC's notice to Coinbase provided the crypto exchange until March 29 to refute the regulator's findings.

Coinbase Executives Reacted Strongly

Meanwhile, the Chief Legal Officer of Coinbase, Paul Grewal, publically slammed the SEC for being opaque with its actions.

"Today's Wells notice does not provide a lot of information for us to respond to. The SEC staff told us they have identified potential violations of securities law, but little more. We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so," Grewal wrote in a blog post.

"Today's Wells notice also comes after Coinbase provided multiple proposals to the SEC about registration over the course of months, all of which the SEC ultimately refused to respond to."

Moreover, the CEO of Coinbase, Brian Armstrong, lashed out at the US federal regulator with a series of tweets. According to Armstrong, "the SEC simply has not been fair, reasonable, or even demonstrated a seriousness of purpose when it comes to its engagement on digital assets."

2/ 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…

SEC's Crack Down against Crypto

Industry insiders earlier reported that the SEC is sending Wells Notices to two stablecoin issuers, Circle and Paxos. But, neither of the companies has confirmed that yet. Meanwhile, Paxos is reportedly facing an investigation by the New York State Department of Financial Services (NYDFS).

Wells Notice: A Wells Notice is a notification issued by regulators to inform individuals or companies of completed investigations where infractions have been discovered. It usually takes the form of a letter, which notifies recipients both of the broad nature of the violations…

The notice against Coinbase came on the same day the SEC brought lawsuits against the Founder of Tron, Justin Sun for engaging in wash trades with the Tronix (TRX) token and offering TRX and BitTorrent (BTT) tokens, which have been categorized as unregistered securities.

On top of that, the lawsuit named eight American celebrities for promoting TRX and/or BTT without disclosing that they were paid. These names are actress and singer Lindsay Lohan; social media influencer and professional boxer, Jake Paul; rapper and record producer, DeAndre 'Soulja Boy' Way; singer Austin Mahone; rapper and record producer Miles' Lil Yachty' McCollum; singer Shaffer' Ne-Yo' Smith; singer and entrepreneur, Aliaune' Akon' Thiam; and adult actress Michele Mason (aka 'Kendra Lust').