Coinbase Battles Back After SEC Threatens To Sue
Coinbase launched a counteroffensive Wednesday after it was threatened with legal action by the Securities and Exchange Commission over the cryptocurrency trading platform’s proposed lending product.
Last week Coinbase received a Wells notice from the SEC indicating that it intends to sue the company over Coinbase Lend, CNBC reported. The news sent Coinbase’s stock price down 3% in premarket trading Wednesday. A Wells notice is the official way regulators tell a company that they intend to sue.
Coinbase disclosed the news in a blog post on its website written by Chief Legal Officer Paul Grewal, who also used the post as an opportunity to fight back against the SEC.
“As surprised as we were at the SEC’s threat to sue without ever telling us why, we want to be transparent with you about the course of events leading up to it,” Grewal wrote. “Coinbase has been proactively engaging with the SEC about Lend for nearly six months. We’ve been eager to hear their perspective as we explore innovative ways for our customers to gain more financial empowerment on Coinbase.”
After months of trying to engage with the @SECGov on our planned Coinbase Lend product, we recently received notice that it intends to pursue legal action against us. We believe dialogue is at the heart of good regulation, even if the SEC may not. https://t.co/OumvyTPQdj
— Coinbase (@coinbase) September 8, 2021
Coinbase Lend is designed to let eligible customers earn interest on select assets, starting with a 4% annual percentage rate on USD Coin (USDC). At issue is how the product should be classified. The SEC told Grewal that it considers Lend a security, but Coinbase disagrees with that designation.
“Coinbase’s Lend program doesn’t qualify as a security — or to use more specific legal terms, it’s not an investment contract or a note,” Grewal wrote in the post. “Customers won’t be ‘investing’ in the program, but rather lending the USDC they hold on Coinbase’s platform in connection with their existing relationship. And although Lend customers will earn interest from their participation in the program, we have an obligation to pay this interest regardless of Coinbase’s broader business activities. What’s more, participating customers’ principal is secure and we’re obligated to repay their USDC on request.”
He went on to say that Coinbase “could have simply launched the product but we chose not to. This is far from the norm in our industry. Other crypto companies have had lending products on the market for years, and new lending products continue to launch as recently as last month. But Coinbase believes in the value of open and substantive dialogue with our regulators. So we took Lend to the SEC first.”
Meanwhile, Forbes reported that the SEC also requested records and testimony from employees and that Coinbase CEO Brian Armstrong accused the agency of “sketchy behavior” and of making a “land grab” compared to other regulators.
This much is known: Coinbase said it will not launch Lend until at least October. The company also plans to keep its customers “informed at every step as things progress.”
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