Crypto exchange platform Coinbase disclosed that it received a formal warning notice from the U.S. Securities and Exchange Commission stating the possibility certain crypto products of the company might get sued.
Followingly, the shares of Coinbase went down by almost 12 percent and the rate of extended trading is currently at 68.18 US dollars. Coinbase received a Wells Notice from the SEC, the content of which was that the agency was about to implement an enforcement action.
A Wells Notice does not always mean that the SEC intends to file formal charges or it would proceed to a legal suit. It meant that the agency would soon take enforcement actions because it came across the possibility of security law violations.
However, the enforcement action might or might not lead to a lawsuit depending on the findings of the SEC that they come across during the process.
Paul Grewal, the Chief Legal Officer at Coinbase, said that if it becomes necessary the company was ready to welcome a legal process to provide the clarity Coinbase has advocated and demonstrated that the SEC has been unfair to the cryptocurrency exchange company.
He further said that the actions of the SEC could not be seen as reasonable when it comes to its engagement with digital assets. He added that until that happens Coinbase would conduct business as usual.
From a source related to Coinbase, staying anonymous because of legal reasons, it was known that the decision of the SEC to issue a Wells Notice was likely tied to its recent declaration that it had planned to explore expanding the off-shore operations in response to regulatory pressure that the company has been facing from the administration, the government of the United States.
It was also known from the source that Coinbase has sensed the agency had acted in retaliation. It was then known from this source that the Wells Notice also contained a mention that the company has listed certain digital assets that could be viewed as unlicensed securities.
The notice did not specify which digital assets were listed or how they could be viewed as unlicensed securities.
On Wednesday, Coinbase published a blog post that detailed and defended the activities of the company.
Grewal wrote in the blog post that the company has met with the SEC over thirty times in the past nine months of time, and the meetings included discussions of what Coinbase has been doing. He added that in the month of January, just one day before the scheduled appointment, the SEC canceled the meeting.
About this, Coinbase was informed that the regulatory body would be shifting back to an enforcement investigation. Grewal continued that it was only now that Coinbase has been able to understand that there exist disagreements within the commission itself on how to proceed with a registration path.
The Wells Notice came now, just two months after the meeting that was canceled.
In the same blog post, the company seemed to defend the transparency of its listing process and mentioned that it has a rigorous asset review process by which more than 90 percent of assets that apply to be listed on the platform have got rejected.
It also said that the same asset review process has also rejected more than hundreds of crypto assets that might cause security concerns.
Digital assets security regulations have been a disputed topic recently as various regulatory boards take differing actions.
While the SEC suggested that all the coins other than Bitcoin might be under the category of the ones that have security concerns associated with them and has to be thought again whether they should be called digital assets or not; the Commodity and Futures Trading Commission viewed that many other tokens also falls under the category of commodities.
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Brian Armstrong, the Chief Executive Officer at Coinbase, criticized the SEC that the latter should provide clear-cut guidelines that contain the mandatory regulations that a digital asset should follow before listing it as a failed product.
Grewal condemned the action of the SEC that denied to even addressing the proposals of the company. The question that has been posed was how can any kind of agency decides whether a product compiles the measures before knowing about the product.
Coinbase has previously submitted product proposals and proposals for a regulatory framework for digital assets.
Coinbase concluded it was more than visible that there were internal divisions inside the agency that have been impacting the crypto companies, and the crypto products by them which will, in turn, affect the whole of the crypto industry and the business market.
Earlier in 2021, Coinbase had to shelve one of its products even before launching because the SEC issued a Well Notice over the product proposal.
The SEC has been cautious over the crypto dealing since the fall of FTX. Recently, it shuttered down the staking service of Kraken, a Bitcoin trading platform, and the company had to pay a penalty of 30 million US dollars.
In the past few hours, the SEC indicted the crypto entrepreneur Justin Sun with fraud, and the celebrities who endorsed his products have also been charged with forgery and manipulation.
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