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Coinbase has been issued a Wells Notice by the SEC over some of its products.
In a blog post titled "We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead," Coinbase said the Wells Notice is in regards to "an undefined portion of our listed digital assets, our staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet."
The SEC told Coinbase that they found potential violations of security laws but when the crypto exchange asked the regulatory body to identify the specific assets in question, the SEC declined.
A Wells Notice informs the company that SEC staff have recommended that the SEC should take enforcement action for security law violation, but is not a formal charge, nor does it necessarily mean a charge will be carried out.
Read more: Coinbase Announces Standard Chartered Partnership, Upgrades Retail Platform in Singapore
“We are prepared for this disappointing outcome and confident in the legality of our assets and services,” Paul Grewal, chief legal officer of Coinbase, said in a statement.
“If needed, we welcome a legal process to provide the clarity we have been advocating for and to demonstrate that the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets.”
The SEC previously issued Coinbase a Wells Notice in 2021, claiming that its "lend" product was a security as it allows users to earn interest by lending out their crypto. Coinbase eventually cancelled the launch of the product.
SEC vs. Crypto
SEC Chair Gary Gensler has repeatedly stated that crypto token products are securities and thus crypto trading platforms must register with the financial watchdog.
Its stance forced Kraken to close its staking services. Gensler also argued that Ether's move to proof-of-stake shifts it to being a security.
Enforcement staff at the SEC issued to BUSD issuer Paxos a Wells notice, which the financial watchdog uses to inform companies and individuals of possible enforcement action. Its notice alleges that BUSD is an unregistered security as the SEC declared that crypto staking services violate security laws.
However, in the beginning of March, the Commodity Futures Trading Commission (CFTC) stated that Ether and stablecoins should be treated as commodities.
Read more: Sorry SEC, Stablecoins Are Commodities According to CFTC
CFTC chair Rostin Behnam believes that Ether is a commodity and should be overseen by the CFTC; a view held by the body in its complaint against FTX founder Sam Bankman-Fried in December.
“Notwithstanding a regulatory framework around stablecoins, they’re going to be commodities in my view,” Behnam said. “It was clear to our enforcement team and the commission that Tether, a stablecoin, was a commodity."
Most recently, the SEC took aim at decentralized exchange SushiSwap and its CEO Jared Grey, issuing them a subpoena.
Read more: SushiSwap Served With SEC Subpoena
Coinbase stock sell-off
Coinbase's stock price fell 8.16% in yesterday's trading to $77.14, and fell even further in after hours trading to as low as $64.95.
Coinbase insiders including CEO Brian Armstrong have sold $7.4 million worth of the firm's stock in the last 30 days according to Dataroma.
Armstrong sold $5.8 million in company stock over the period, with $2.24 million being sold off just this week. Between 3–15 March, Armstrong sold 60,000 shares for $3.56 million.
Chief people officer Brock Lawrence, chief accounting officer Jones Jennifer, and chief legal officer Grewal Paul collectively sold stocks worth $1.68 million.
Data also shows that Coinbase insiders and early investors have made $5.8 billion from their sales of the exchange’s stocks since the company listed in 2021.
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