In a blog posted on March 22, crypto exchange Coinbase stated that the United States Securities and Exchange Commission (SEC) issued them a ‘Wells Notice’. The notice was given regarding a few of the listed digital assets of Coinbase but these assets were unspecified. The assets might include staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet.
A Wells notice is a letter sent by the SEC to individuals or businesses after the completion of an SEC investigation. The notice’s objective is to inform the recipients that the SEC intends to file a civil enforcement action against them. However, this is only a warning with no confirmation of the action. In most cases, the individual or corporation is allowed 30 days to produce this response in the form of a legal brief outlining legal and factual considerations as to why no charges should be made against them.
“Today’s Wells notice does not provide a lot of information for us to respond to. The SEC staff told us they have identified potential violations of securities law, but little more. We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so.”
Coinbase tried its level best to reason with SEC over the potential investigation. According to the blog, this began after the investigation filing in August 2022. It was the SEC that proposed to register parts of Coinbase with the government agency. Coinbase produced two models of registration but received cold responses throughout the process.
The SEC earlier announced a settlement with Kraken under which Coinbase agreed to discontinue its staking programme for US consumers. It also targeted Paxos in February 2023 for selling unregistered security. The Wells notice came on the heels of the SEC launching an action against Justin Sun and many celebrities for the offering, sale, and promotion of Tron TRX and BitTorrent.
Due to this continuous back and forth, Coinbase seems to have had it. Brian Armstrong, co-founder and CEO of Coinbase, compared the SEC to “soccer refs” in a pickleball game, criticising US authorities for failing to “agree on the rules” of “this new game.”
Providing support to the CEO, Coinbase chief legal officer Paul Grewal also spoke against the SEC. According to him, since there is no clear handbook for crypto with SEC, it leads to them getting no answers. He also claimed this to be “a good faith rulemaking process with industry”.
The crypto industry seems to be backing Coinbase and Armstrong’s arguments. There have been constant rifts between the industry and SEC. While other companies, like Kraken, negotiated a deal with the SEC requiring them to stop offering staking services to US consumers, Armstrong has consistently stated that Coinbase’s staking services are not securities and that the company is willing to defend this stance in court if necessary.