The US Securities and Exchange Commission (SEC) has issued a Wells notice to Coinbase Global, which implies that it plans to take legal action against the company.
The move represents the SEC’s largest step to date in asserting its jurisdiction over cryptocurrency. In the Wells notice, the SEC warns Coinbase that it believes the company or its employees have violated investor-protection laws. It concerns Coinbase’s wallet service, its Coinbase Earn service, and the digital assets listed on its exchange. Coinbase’s shares fell almost 12% in response to the news. If the SEC chooses to sue Coinbase, it could seek an injunction to prevent the company from carrying out any activities that it deems to be illegal.
Coinbase has said that it is ready for the legal process and confident that the SEC’s claims are unfounded. However, in recent months, the SEC has been targeting larger cryptocurrency companies, and some observers have suggested that it is seeking to make a high-profile example of Coinbase. The SEC has already launched legal action against entrepreneur Justin Sun and has settled with celebrities Jake Paul and Lindsay Lohan over endorsements of Sun’s business that failed to disclose required information.
The regulatory environment around cryptocurrency has been a subject of considerable debate, with many in the sector arguing that it should not be subject to securities laws. If Coinbase were to win any legal battle with the SEC, it could encourage further claims from crypto industry participants that the regulator has overreached. In February, cryptocurrency exchange Kraken agreed to pay $30m in penalties to the SEC and stop offering staking services to US customers after a settlement.
