The Securities and Exchange Commission recently issued a Wells Notice to crypto exchange Coinbase. The agency has warned the company of potential federal security law violations. Typically, a Wells notice precedes an enforcement action.
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The CEO of the exchange, Brian Armstrong, took to Twitter to clarify that the SEC reviewed Coinbase’s business “in detail” a couple of years back and approved it to go public. Furthermore, in the S1 filing, Coinbase “clearly explained” its asset listing process. The same contained 57 references to staking. Armstrong asserted that the exchange runs a “rigorous asset review process” and has rejected more than 90% of assets that applied to be listed on the platform. He said,
“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.”
On the back of this development, Coinbase shares dropped in value. It closed Wednesday, March 22’s trading session 8.16% lower, closing at $77.14.
Coinbase is “confident” in the way it runs its business
Specifically, the Wells notice has stemmed from the investigation that was disclosed last summer. Right after that investigation began, the SEC asked Coinbase if it would be interested in discussing a “potential resolution” that would include registering some portion of its business with the agency. Coinbase nodded in agreement.
In a blog post, Coinbase’s Chief Legal Officer, Paul Grewal clarified that they met with the SEC more than 30 times over nine months, but the exchange was doing all of the talking. In December 2022, the company asked the SEC for some feedback on its proposals.
According to Coinbase, the SEC staff agreed to provide feedback in January 2023. However, on the day before the scheduled meeting, the SEC dismissed Coinbase and told them that they would be “shifting back to an enforcement investigation.”
The investigation is currently at a “very early stage.” Coinbase has produced documents and provided two witnesses for testimony. In the blog post, Grewal said that the company does not take this development lightly. Nevertheless, he asserted that “we are very confident in the way we run our business.”