However, the exchange’s announcement declared a Wells notice from the US SEC, a letter that acts as a warning of possible legal action against the recipient, subject to a written statement from the respondent before any action would be taken.
Coinbase has said that it has been engaging “productively” with the US regulators for months, with chief legal officer Paul Grewal stating that the exchange “continues to welcome additional regulatory clarity”.
After months of trying to engage with the @SECGov on our planned Coinbase Lend product, we recently received notice that it intends to pursue legal action against us. We believe dialogue is at the heart of good regulation, even if the SEC may not. https://t.co/OumvyTPQdj
— Coinbase (@coinbase) September 8, 2021
In his blog post, Grewal claimed that the SEC’s concerns about Coinbase’s ‘Lend’ were related to the belief that the product involved a security.
Coinbase CEO Brian Armstrong has stated that Coinbase are yet to receive a clear explanation:
6/ They refuse to tell us why they think it’s a security, and instead subpoena a bunch of records from us (we comply), demand testimony from our employees (we comply), and then tell us they will be suing us if we proceed to launch, with zero explanation as to why.
— Brian Armstrong (@brian_armstrong) September 8, 2021
The agency has said it’s assessing Lend through Supreme Court cases, namely the Howey case from 1946 and Reves from 1990, with Grewal adding that formal guidance about how the SEC plans to apply those tests to such products would be beneficial. The SEC are yet to share their side of the story.
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Previous crypto lending cases
Programmes that allow users to lend cryptocurrencies in return for interest are becoming increasingly common globally, but some regulators claim that products such as the planned ‘Lend’ product from Coinbase should comply with existing securities laws.
A cease and desist order from the New Jersey Bureau of Securities stated that BlockFi’s accounts weren’t registered with that office, or exempt from registration.