Coinbase Gets A Wells Notice From The SEC, As The Exchange CEO Compares The Regulator To A “Soccer Ref” In A Pickleball Game

Crypto exchange Coinbase has become the second platform to receive SEC’s Wells Notice. The Company’s CEO, Brian Armstrong, took to his Twitter and revealed that the SEC had issued the exchange a Wells Notice, warning that it identified potential violations of U.S. securities laws. Coinbase noted in a statement that:

Based on the discussions with the staff, the Company believes that this potential enforcement action would relate to aspects of the Company’s spot market, staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet. The potential civil action may seek disgorgement and civil penalties.

However, a Wells Notice is a way for the staff to inform a company that they recommend the SEC take enforcement action for potential violations of security laws. It is not a formal charge or lawsuit. However, it may lead to one.

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

Apart from Coinbase, Paxos, a financial service provider, was issued a Wells Notice recently. This forced the Company to stop minting the Binance-branded stablecoin (BUSD). Just as the Paxos Wells Notice led the platform to cease minting BUSD stablecoins, the SEC’s recent regulatory scrutiny seems to have an impact on Coinbase, as it has suspended Algorand staking rewards.

According to a tweet post by Algorand’s CEO, Staci Warden, she noted:

They’ve now informed us (Coinbase) that they are evaluating their services in light of recent regulatory scrutiny, and for that reason, the platform will no longer support Algo rewards for retail customers.

Coinbase CEO’s response to SEC’s Wells Notice

The exchange co-founder and CEO, Brian Armstrong, has returned his response concerning SEC’s Wells Notice by comparing it to a “soccer ref” in a pickleball game. The CEO has criticized the regulators for not being able to be in line with the “rules of this new game.” Further, Armstrong has noted that” a Wells Notice typically precedes an enforcement action.”

Armstrong has been vocal about the regulator’s need for more clarity regarding crypto regulation. He has argued that the SEC has not demonstrated its seriousness of purpose in its engagement with digital assets. Notably, there has been an ongoing debate, on who should be the primary body to regulate cryptocurrencies. However, when Armstrong was asked to give his remarks on the most recent development in ‘NFL terms,’ he noted:

Imagine you’ve got football and soccer refs on the field, but we are playing pickleball. The refs can’t agree on the rules of this new game, and one of them decides to change a call they made back in April 2021.

Speaking of “a call they made back in April 2021” refers to the U.S. regulator’s approval of the exchange’s application to go public.

On the other hand, Coinbase chief legal officer, Paul Grewal, has disclosed that the SEC provided ‘no clear rule book’ on the crypto regulations. Grewal has further noted that “the efforts to engage with the SEC are met with silence or enforcement actions, and the regulators have not followed a good faith rulemaking with the industry as required under the APA 10/15.” However, both Coinbase executives seem to use the legal process to facilitate the crypto community with regulatory clarity. Armstrong noted,” we are proud to stand up for our customers and the crypto industry in this.”

The truth is that today there is no clear rule book from the SEC on crypto, and efforts to engage with the SEC are met with silence or enforcement actions. They have not followed a good faith rulemaking process with industry, as required under the APA. 10/15

— paulgrewal.eth (@iampaulgrewal) March 22, 2023

The crypto community rallies behind the crypto exchange

Various crypto enthusiasts have thrown their support behind Coinbase, as the majority have agreed that the SEC has reversed its earlier position concerning the exchange. Further, some have noted that the crypto exchange is fighting for the entire crypto ecosystem. Some crypto enthusiasts include the Chief Policy Officer of the Blockchain Association, Jake Chervinsky, who has noted that Coinbase has invested a lot of time to obtain regulatory clarity from the SEC. However, the idea that Coinbase has been “rewarded with a Wells Notice is sad, but not surprising from an agency well known for regulating for enforcement.”

Besides Chervinsky, Justin Sun, the founder of Tron, a blockchain DAO ecosystem, has also given his remarks. He has acknowledged that the digital assets’ regulatory framework needs development as it is still in its early stages.

It is no secret that the SEC's regulatory framework for digital assets is still in its infancy and is in need of further development.

— H.E. Justin Sun 孙宇晨 (@justinsuntron) March 23, 2023

Sun was recently charged with selling unregistered securities and fraud by the SEC.

Despite the other crypto companies, such as Kraken, reaching an agreement with the SEC, which forced them to  shut down its staking services, Coinbase’s CEO has stood firm, noting that staking services are not securities. Further, the firm noted that it would defend this position in court if at all it reaches that point. Coinbase remains clear to see the ecosystem thrive. Regardless of the high stakes, Coinbase is all prepared to go out in its legal battle and defend its position.

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