US regulators threaten to sue Coinbase if ‘Lend’ product goes ahead

The planned ‘Lend’ programme from Coinbase will look to allow users to earn interest by lending crypto assets, with the exchange stating that it would delay the launch until October at the earliest.

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”.

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:

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.

Reuters reported in July that cryptocurrency platform BlockFi was ordered by the US state of New Jersey to cease offering interest-bearing accounts, which raised $14.7 billion from investors.

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.

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Aaron Hurst

Aaron Hurst is Information Age's senior reporter, providing news and features around the hottest trends across the tech industry.

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