Coinbase Faces Legal Action from SEC for Its Proposed Lending Program

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The US Securities and Exchange Commission (SEC) has indicated that it could charge Coinbase with breaking security laws with its proposed yield program.

In a blog post released earlier today, Paul Grewal—the Chief Legal Officer at Coinbase—revealed that the agency sent a Wells notice to the exchange, which regulatory bodies send to prospective respondents notifying them of their intention to sue.

Coinbase noted that it would cooperate with the financial regulator for about six months over the upcoming launch of the Coinbase Lend program, which would offer fixed interest to users for lending specified crypto assets.

Lending programs are commonplace in the crypto space, with other large and small crypto companies offering them. Coinbase highlighted that: “Other crypto companies have had lending products on the market for years, and new lending products continue to launch as recently as last month.”

Although the SEC has not clamped down on any crypto company offering yield programs before now, other state regulators previously went after BlockFi for offering similar services.

Coinbase Omitted Its Waitlist Register While Answering SEC’s Investigation

Before now, Coinbase met with the SEC to discuss its framework for the yield program. The behemoth crypto exchange provided extensive details and addressed all inquiries about the program from the regulator. Grewal noted that: “The SEC told us they consider Lend to involve a security, but wouldn’t say why or how they’d reached that conclusion.”

However, Coinbase did not scrap the program but went ahead to announce it in June without setting a launch date and initiated a waitlist to register initial customers.

The Commission then launched a formal investigation against the crypto company, requesting documents, written responses, and sworn testimony by a corporate witness. Although Coinbase followed due process in most of the requirements, it failed to provide the details of registered waitlist customers. The Chief Legal Officer added that: “Despite Coinbase keeping Lend off the market and providing detailed information, the SEC still won’t explain why they see a problem. Rather they have now told us that, if we launch Lend, they intend to sue.”

 

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