SEC Targets Coinbase With Wells Notice And Threatens Enforcement Actions, CEO Brian Armstrong Fights Back

Cryptocurrency exchange Coinbase Global Inc COIN has received a Wells Notice from the U.S. Securities and Exchange Commission (SEC) over potential violations of U.S. securities law.

What Happened: In a regulatory filing, Coinbase revealed the notice related to its spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet with SEC seeking "injunctive relief, disgorgement, and civil penalties."

A Wells Notice is a warning that the SEC is considering bringing an enforcement action against a company.

Coinbase described the investigation as "cursory" and said the notice provided "relatively little information" about the alleged violations.

The exchange's services will continue to operate as usual until any legal process has been resolved.

Coinbase's founder and CEO Brian Armstrong had previously spoken out against the SEC's regulatory approach to the cryptocurrency industry.

In a series of tweets, Armstrong defended Coinbase's compliance practices and called for clearer regulations.

He also expressed confidence in Coinbase's legal position, stating, "We are right on the law, confident in the facts, and look forward to sharing our story."

1/ Today Coinbase received a Wells notice from the SEC focused on staking and asset listings. A Wells notice typically precedes an enforcement action.

— Brian Armstrong (@brian_armstrong) March 22, 2023

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Armstrong further stated that Coinbase was approved by the SEC two years ago to go public and that its S1 filing explained its asset listing process and included 57 references to staking.

He added Coinbase runs a rigorous asset review process and rejected more than 90% of assets that have applied to be listed on the platform.

"Going forward the legal process will provide an open and public forum before an unbiased body where we will be able to make clear for all to see that the SEC simply has not been fair, reasonable, or even demonstrated a seriousness of purpose when it comes to its engagement on digital assets," Armstrong said.

Why It Matters: This comes as the SEC has recently taken a more aggressive stance toward the cryptocurrency industry, with multiple enforcement actions against companies and individuals.

Paxos, another stablecoin issuer, also received a Wells notice from the SEC in February.

A Paxos spokesperson had said, "We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary."

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Photos: Shutterstock, courtesy Coinbase