Mar 22, 2023 - Economy

SEC threatens to sue Coinbase over staking, more

Photo: Jakub Porzycki/NurPhoto via Getty Images

Coinbase, the largest cryptocurrency exchange in the U.S., is in the crosshairs of a top financial regulator, again.

Driving the news: The company said Wednesday evening that it received a Wells notice from the Securities and Exchange Commission (SEC) — a formal communique alerting a recipient of possible enforcement action.

  • "We are prepared for this disappointing outcome and confident in the legality of our assets and services," Paul Grewal, chief legal officer, said in a statement.

Details: Coinbase said the Wells notice touched on aspects of its exchange, its staking service called Earn, and its non-custodial wallet following an SEC investigation it described as "cursory."

What they're saying: The SEC has said its identified potential violations without being specific about them, according to Coinbase.

  • "We met with the SEC more than 30 times over nine months, but we were doing all of the talking," the company said in a blog post.

The big picture: SEC Chair Gary Gensler has said most everything in crypto is a security. And by the looks of the charges the SEC has levied against companies in the industry just this year alone, it appears the regulator is winding up for more.

  • Recall Kraken settled with the SEC over staking earlier this year and shuttered that product in the U.S.
  • Meanwhile, the SEC has charged and/or settled with companies and individuals including BKCoin, FTX's Nishad Singh, NBA Hall of Famer Paul Pierce, Terra's Do Kwon, Kraken, Nexo, Genesis, and Gemini — all in just the last three months. And now Tron's Justin Sun.

Flashback: This is not Coinbase's first brush with the SEC, nor its first Wells notice.

  • The SEC threatened to sue the exchange in 2021 over its yet-to-be-launched Lend product, prompting Coinbase to drop it altogether.
  • Also, there is the pending issue of the nine tokens that the SEC deemed were securities, some of which Coinbase still lists.

What we're watching: How Coinbase responds, which it has 30 days to do.

Quick take: Coinbase probably won't shutter its products and go quietly this time.

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