Coinbase and SEC in Impending Legal Battle

Coinbase appears to be the latest crypto firm the United States Securities and Exchange commission is eying for breaking one of its laws. 

This was disclosed in a tweet on September 8 by the exchange CEO, Brian Armstrong, who tried to defend the company’s position against the move by the financial regulator. Coinbase’s Chief Legal Officer, Paul Grewal, further elaborated on the situation in a blog post, saying that “The SEC has told us it wants to sue us over Lend. We don’t know why.”

According to the blog post, the company had received a “Wells notice” from the SEC —an indication that the exchange would soon be sued by the regulator. The blog post clarified that the SEC was planning to sue it for its plan to integrate a lending program to its services. 

The exchange further claimed that it had been engaging the SEC on the subject for the past 6 months, however the watchdog told the exchange that they consider “Lend to involve a security” without providing any further information on how they arrived at their decision.

Coinbase Lend program would offer eligible users in the United States an opportunity to earn a passive 4% annual interest on their, with a guaranteed principal USDC deposits.

However, SEC currently has increased monitoring on DeFi, and considers any lending and interest-earning-related program to be Security. Coinbase CEO noted that “They responded by telling us this lend feature is Security. Ok – it seems strange; how can lending be Security? So we ask the SEC to help us understand and share their view.”

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.

Armstrong questioned why the SEC would prefer to use intimidate rather than providing clarity on matters; he also argued that several crypto companies are in the game and wonders why Coinbase would be an exemption. According to him, “hopefully the SEC steps up to create the clarity this industry deserves, without harming consumers and companies in the process.”

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