Coinbase, a crypto exchange, received a Wells notice from the SEC notifying them of possible violations of U.S. securities law.
On Wednesday, Coinbase, a cryptocurrency exchange, received a Wells notice from the Securities and Exchange Commission (SEC), which cautioned the company that it may have breached U.S. securities law. As a result, Coinbase’s shares dropped approximately 10% in after-hours trading.
“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 said in a regulatory filing. “The potential civil action may seek injunctive relief, disgorgement, and civil penalties.”
The Securities and Exchange Commission (SEC) has intensified its crackdown on the cryptocurrency industry, targeting companies and initiatives that it believes were promoting unregistered securities. In mid-2022, news of an SEC investigation into Coinbase was initially reported.
Prior to the FTX collapse, the crypto market experienced turbulence due to increasing interest rates and a shift towards less risky investments. This led to the downfall of stablecoin Terra, as well as the failure of crypto exchanges Celsius and Voyager, which was triggered by the collapse of Three Arrows Capital, a crypto hedge fund.
Receiving a Wells notice from the SEC is typically one of the final steps before formal charges are issued. This notice outlines the regulatory argument and allows the accused to defend against the SEC’s claims.
Coinbase characterized the investigation as brief and stated that the Wells notice contained minimal information about potential violations.
“Although we don’t take this development lightly, we are very confident in the way we run our business – the same business we presented to the SEC in order for us to become a public company in 2021,” In a blog post, Paul Grewal, the Chief Legal Officer of Coinbase, stated that…
The company stated that its exchange’s offerings will continue to function normally while any legal proceedings are ongoing.
Coinbase leaders, such as CEO Brian Armstrong, have resisted what they see as excessive intervention by the SEC, which has taken a strong stance against the cryptocurrency sector following the FTX crash last November. The regulatory agency, under the leadership of Chair Gary Gensler, has initiated enforcement measures against several prominent players, including Gemini, Genesis, Justin Sun of TRON, Do Kwon, and Kraken, a crypto exchange.
Source of information ; Bloomberg News