SEC Warns Coinbase It's Pursuing Enforcement Action Over Securities Violations

Crypto exchange Coinbase (COIN) may soon face an enforcement action tied to its listing of potential unregistered securities, the company said Wednesday.

Coinbase disclosed the SEC alleged the U.S.-based company may be operating in violation of securities laws in the running of its exchange and staking services. The regulator has targeted Coinbase with a so-called Wells Notice that informs the business that the agency is planning a future action.

“If needed, we welcome a legal process to provide the clarity we have been advocating for and to demonstrate that the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets," said Paul Grewal, Coinbase's chief legal officer, in a statement. "Until then, it’s business as usual."

In a blog post Wednesday, Coinbase indicated that its digital asset listing process was not the subject of the notice. Rather, it’s the Coinbase Earn and Wallet products that are the subject of the SEC’s investigation.

An individual familiar with the situation told CoinDesk that the exchange had engaged in over 60 different discussions with the federal regulator over questions about registering and listing digital assets. The issues discussed include defining the right market structure and determining which assets could be listed.

Coinbase CEO Brian Armstrong also tweeted about the Wells notice on Wednesday.

Coinbase has publicly criticized the SEC for what it describes as a vague regulatory structure, petitioning the regulator in July to explain how digital assets could fit within securities laws.

For his part, SEC Chair Gary Gensler has said on multiple occasions that he believes crypto exchanges – including Coinbase specifically – are operating as unregistered securities exchanges in the U.S., citing the number of tokens they list and arguing the vast majority of these resemble securities.

Shares of Coinbase were down more than 11% after-hours on Wednesday following the release of the news.

The Wells Notice follows the SEC’s suing Tron founder Justin Sun on allegations the TRX and BTT tokens are unregistered securities (among other charges).

UPDATE (March 22, 2023, 21:31 UTC): Adds additional detail.

UPDATE (March 22, 2023, 21:53 UTC): Adds Armstrong tweet and stock price information.