On April 27, Coinbase, the popular crypto exchange based in San Francisco, publicly disclosed its response to the Wells notice it had received from the U.S. Securities and Exchange Commission (SEC) back in March. A Wells notice is a formal notification from a regulator that it intends to take enforcement action against an individual or company. In this case, the SEC had given Coinbase a Wells notice after reportedly discovering that the company planned to offer a digital asset lending product, which the regulator deemed to be a security.
In its response to the SEC, Coinbase maintained that the regulator’s enforcement actions were in direct contrast to the agency’s previous approval of the firm’s public listing via its S-1 filing. The company asserted that the SEC’s change in attitude would negatively affect innocent investors, who stand to lose the most.
Coinbase’s CEO, Brian Armstrong, presented the company’s response to the U.S. securities regulator on Thursday, divulging their Wells response. In direct opposition to the SEC’s enforcement actions, Coinbase maintains a firm disagreement, while the correspondence made it clear that the regulator should have been aware of this stance when Coinbase went public. Coinbase went public on Nasdaq on April 14, 2021.
The animosity between the two entities was further highlighted in Coinbase’s response, where the exchange explained that the SEC had neglected to provide clear guidelines for the regulator’s recent enforcement actions. “If the commission had believed in April 2021 that Coinbase’s core businesses violated securities law, it would have been required by its own mandate to prevent the S-1 from becoming effective to protect the investing public,” the response says. “Instead, it allowed the offering to proceed, and millions of members of the public invested their savings in Coinbase. Investors could only infer by this approval that the Commission did not think Coinbase’s core business was unlawful.”
On Thursday, Armstrong reaffirmed Coinbase’s commitment to creating innovative products that promote economic freedom. “We are committed to building in the U.S. and around the world,” declared the Coinbase CEO. “We will defend ourselves and stand up for the rule of law.”
Coinbase’s Wells response conveyed its bewilderment at the regulatory body’s abrupt change in attitude, particularly given the exchange’s extensive interaction with the SEC during its public listing process. “The staff’s laundry list of proposed charges all rest on three primary legal theories, each of which is flawed and untested,” asserted the missive.
Coinbase’s Wells response comes on the heels of the company’s announcement that it had initiated legal proceedings in federal court, demanding that the SEC respond to their petition filed in July of 2022. Similarly, the Wells response pledged to continue cooperating with the SEC in the hopes of amicably resolving the matter.
Overall, Coinbase’s response illustrates the growing tension between the crypto industry and regulators. With crypto assets becoming more widely adopted and mainstream, regulators are seeking to bring the industry under their purview to protect consumers and prevent financial crimes. However, this often leads to clashes between regulators and industry players, as each side seeks to protect its interests. It remains to be seen how this particular situation will play out, but it is clear that Coinbase is not backing down and is willing to fight the SEC’s enforcement actions.
