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Coinbase revealed in a March 22 filing that it has received a Wells notice from the U.S. Securities and Exchange Commission (SEC).
Coinbase could face charges
That Wells notice means that the SEC has made a preliminary determination that will see it recommend an enforcement action against Coinbase.
If the SEC does initiate legal action, it will most likely allege that Coinbase violated federal securities laws. The text of the filing suggests that the upcoming allegations concern parts of Coinbase’s main trading platform (ie. spot market), as well as other services such as Coinbase Earn, Coinbase Prime, and Coinbase Wallet.
Coinbase has publicly acknowledged the Wells notice on its blog. Though it confirmed that the above areas of service are under scrutiny, it also said that the notice does not include enough information for it to provide more a detailed response.
The company asserted that the SEC refused to identify particular cryptocurrencies and assets that may be considered securities. It also said that the regulator further refused to respond to its registration proposals in recent months.
The Wells notice follows engagement with the SEC. Coinbase said that the Wells notice is specifically tied to an SEC probe reported in the summer of 2022, though the company also engaged with the SEC for several years prior to that investigation.
Will Coinbase fight or settle?
Coinbase said today it is confident that its services are legal and that it “welcomes a legal process.” That vague phrasing does not exclude the possibility of a settlement.
By contrast, personal statements from Coinbase executives suggest that the company intends to fight the SEC in court. CEO Brian Armstrong said on Twitter that his company aims to show that the SEC “has not been fair, reasonable, or even demonstrated a seriousness of purpose.” Coinbase CLO Paul Grewal, meanwhile, said that the company will “avail [itself] of the court system to finally start to get some clarity for the crypto industry.”
It is also possible that Coinbase will not face charges. The company wrote in its latest blog post that the Wells notice “is not a formal charge or lawsuit, [but] can lead to one.”
However, crypto companies have been largely unsuccessful in fighting the SEC, so the regulator has little reason to refrain from filing charges.