SEC Investigates Coinbase’s Products and Services

Coinbase, the exchange behemoth, has received a Wells Notice from the Securities and Exchange Commission regarding inquiries into several of its offerings. This is just one of many regulatory warnings recently issued to American crypto companies.

The company stated in a blog post that the alert relates to some of the exchange’s services, the staking service, Coinbase Earn, and Coinbase Wallet.

According to Coinbase, the Securities and Exchange Commission did not provide enough information for them to respond. It was further added that an SEC staff member had pointed out to them that the SEC has identified a potential breach of securities law. Allaying customers’ fears, Coinbase said that it will continue to operate products and render services. 

Commenting on this notice, the Chief Legal Officer at Coinbase Paul Grewal revealed the company’s preparedness and expectancy for a move like this. However, he asserted the legality of all Coinbase assets and services. “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,” Paul added. 

In the last nine months, Coinbase has met with the SEC more than 30 times, but the commission has not been responsive. The company had also turned down more than 90% of the assets that applied to list on the marketplace

The announcement comes as regulatory scrutiny of staking and other products increases. Competitor exchange Kraken shut down its U.S. operations and paid a $30 million fine in February after reaching a settlement with the SEC over allegations involving its staking-as-a-service program. Because the staking-as-a-service business was expected to generate a profit, the regulator accused the corporation of marketing unregistered securities. Coinbase has said in the open that its staking activity complies with U.S. securities legislation.

The SEC has been on a mission to crack down on passive investment offerings after several high-profile failures left customers in court trying to reclaim their funds. The move was a sign of more difficulties for crypto companies in the U.S. 

The Wells Notice for Coinbase also comes after Ishan Wahi, a former product manager for Coinbase, pleaded guilty to charges connected to wire fraud in February. 

A move to dismiss that case was submitted by Wahi’s attorneys. The Justice Department said that Wahi gained over $1 million as a result of informing his brother and friend about which tokens will be available for purchase on Coinbase. While waiting for Wahi’s anticipated sentencing in the upcoming months, the civil lawsuit is still active.

Coinbase proactively investigated Wahi’s behavior on its own prior to the criminal and civil indictments and is not currently under investigation. Following the news, Coinbase’s stock experienced a significant drop of 11.6%.

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