Coinbase, one of the largest cryptocurrency exchanges in the US and the world, has been issued a Wells notice by the Securities and Exchange Commission (SEC) indicating that the regulator plans to pursue enforcement action against the company over its staking services. Thread by Coinbase's CEO:
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
The SEC has warned Coinbase that its staking-as-a-service product may constitute unregistered security and could be in violation of securities laws.
2/ Two years ago the SEC reviewed our business in detail and approved Coinbase to go public. Our S1 clearly explained our asset listing process and included 57 references to staking. Coinbase runs a rigorous asset review process and has rejected more than 90% of assets that have…
— Brian Armstrong (@brian_armstrong) March 22, 2023
But on Monday, March 20, according to Coinbase's blog post, they submitted a letter to the SEC, in particular, calling for rulemaking clarity regarding staking because of the regulatory crackdown against Kraken, which was fined $30 million over staking. Coinbase chief legal officer, Paul Grewal, wrote in the letter that the company was surprised to see its peer, Kraken, announce that it had reached a settlement with the SEC over its staking business. This statement suggests that Coinbase was taken aback by the SEC's recent actions and may have believed that its staking products complied with securities regulations.
But instead of some constructive answer or "reasonable crypto rules for Americans, we got legal threats," wrote Coinbase in the blog post.
Nevertheless, Coinbase has immediately responded by suspending the Algorand staking rewards program, which allows users to earn rewards by holding a certain amount of the ALGO crypto tokens on the platform. The suspension was announced on March 22, the same day the SEC warned Coinbase.
So confused with this notice to @coinbase.
— Sandeep Nailwal | sandeep. polygon 💜 (@sandeepnailwal) March 23, 2023
Coinbase is the gold standard of compliance in crypto. As a regulator, why would you go after the most compliant company of the industry?
Doesn’t it discourage everyone else trying to be US compliant?
Whats going on over there in US? https://t.co/GeeVtfa8d3
From the very beginning @brian_armstrong made the decision that @Coinbase should play by the rules, engage with regulators and lawmakers, and behave like a responsible actor in what used to be a nascent industry. We should be proud of this exact kind of US-born responsible… https://t.co/kiOijgEUfw
— David Marcus (@davidmarcus) March 23, 2023
Coinbase CEO Brian Armstrong, too, criticized the agency for "intense regulatory hostility" towards the crypto industry and argued that the SEC's actions were "sketchy behavior" and that the agency had failed to provide clear guidelines for companies to follow. Armstrong even compared the situation to playing "pickleball with football rules."
Imagine you've got both football and soccer refs on the field, but we're actually playing pickleball (fastest growing new sport in America). The refs can't really agree on the rules of this new game, and one of them decides to change a call they made back in April 2021.
— Brian Armstrong (@brian_armstrong) March 22, 2023
Meanwhile, Coinbase's shares have taken a hit, dropping 16% (at the time of writing) in response to the SEC's warning. The drop, though, comes after the company's shares had been on an upswing, buoyed by news of its expansion into Brazil. On Monday, March 20, Coinbase's stock price surged nearly 12% after the company announced plans to launch its platform in the South American country.
I mention it because shortly after that, news broke that Coinbase CEO sold around 90,000 shares (for $5.8 million) right before an SEC warning on March 15 and 21. And with the sales of the other company executives — chief people officer Brock Lawrence, chief accounting officer Jones Jennifer, and chief legal officer Grewal Paul, — the total value of shares sold totaled $7.4 million, according to Dataroma data.
While this is not proof of insider trading in and of itself, it definitely can be a sign of it. Also, it has raised additional questions about the company's prospects and the regulatory risks it may soon face.
However, Coinbase themselves are showing optimism and commitment about the future of the company and even the prospects of a lawsuit against the SEC – with the full support of the crypto community, irritated by the recent regulatory pressure. But moving
3/ While we understand that this is all part of the journey to reforming our financial system, we are right on the law, confident in the facts, and welcome the opportunity for Coinbase (and by extension the broader crypto community) to get before a court.
— Brian Armstrong (@brian_armstrong) March 22, 2023
Oh PS - if Coinbase does indeed choose to fight the SEC as they are saying they will, then I'm:
— Adam Cochran (adamscochran.eth) (@adamscochran) March 22, 2023
-Moving all my purchases to Coinbase
-Moving all my trading to Coinbase
-Delegating to Coinbase staking nodes
If they go to bat for this industry, I'll vote with my wallet. 🫡
I’m not a fan of Coinbase at all but I support their fight against the SEC.
— Nosh ☯︎ (@0xnosh) March 22, 2023
After approving Coinbase S1 filing two years ago which references staking 56+ times they decide to hit them with a wells notice now?
Stifling innovation is not the move. Especially in this economy. https://t.co/W48BWlho6i
Coinbase is going to bury the SEC in court. They have the war chest and facts on their side. The judicial system has been dunking on the SEC in every available situation.
— The Wolf Of All Streets (@scottmelker) March 22, 2023
Let’s go. https://t.co/HRmH55U1qG