Coinbase Crypto Exchange Facing Possible SEC Charges, Company Says
Top line
Cryptocurrency exchange Coinbase announced Wednesday that it received a notice from the Securities and Exchange Commission warning that regulators have identified possible violations of securities laws, in the latest legal snarl for the crypto giant.
Keywords
Coinbase attorney Paul Grewal said in a blog post that the SEC sent the company a “Wells notice” warning it of possible violations that could lead to charges, but offered “little more” information, other than telling the company that the violations could involve “a undefined” part of our listed digital assets, the staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet.”
Grewal said Coinbase is “prepared for this disappointing result” but will continue to operate as normal.
Grewal added, “we are very confident in the way we run our business,” while blasting the SEC for a so-called lack of transparency and criticizing regulation of crypto exchanges in general as lacking direction and clarity.
Shares of Coinbase fell more than 13% in after-hours trading to $67.00 after falling more than 8% on Wednesday to close at $77.14.
The SEC declined to comment.
Decisive quote
“Our industry continues to see new, conflicting statements from regulators instead of actual rules,” Grewal asserted.
Key background
Regulators have been scrutinizing crypto exchanges much more recently after the crash in crypto prices combined with alleged illegal behavior by top industry figures led to a series of high-profile failures, capped by FTX’s collapse in November and the subsequent arrest of founder Sam Bankman-Stekt on fraud charges. Coinbase has been under SEC investigation since last summer amid a broader SEC crackdown on unregistered securities, though the company insists none of the crypto products or services it offers can be considered securities — a tightly regulated asset class including traditional investments like stocks and bonds. SEC officials have argued that cryptocurrencies should be considered securities since many crypto holders view coins as an investment vehicle, rather than a currency to be exchanged. Last month, the crypto meltdown caught rival exchange Kraken, which agreed to pay $30 million and stop offering “staking” services — which give users a return if they allow their crypto assets to be used to validate blockchain transactions — in a settlement with SEC. The agency accused Kraken of selling unregistered securities, although Coinbase argued this week that its staking services should not count as securities.
Big number
100 million dollars. That’s how much Coinbase agreed to pay New York regulators in a January settlement over allegations that it allowed users to open accounts without adequate background checks, which may have encouraged money launderers to use their Coinbase accounts in illegal schemes.
Tangent
Nikhil Wahi, the brother of former Coinbase product manager Ishan Wahi, pleaded guilty last year in the first insider trading case involving a crypto firm. Wahi admitted to making money based on knowledge of coins that Coinbase agreed to list on the exchange before the plans were made public.
Further reading
FTX files for bankruptcy – Former billionaire Sam Bankman-Fried steps down as CEO (Forbes)
Sam Bankman-Fried Indicted on Eight Felonies – Including Wire Fraud and Campaign Finance Violations (Forbes)
Brother of Ex-Coinbase Manager Pleads Guilty in First Crypto Insider Trading Case (Forbes)
Coinbase to pay $100 million after regulators find ‘significant flaws’ increase risk of criminal activity (Forbes)
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