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:
The SEC has warned Coinbase that its staking-as-a-service product may constitute unregistered security and could be in violation of securities laws.
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.
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."
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