Coinbase shares fall after the SEC reveals plans to sue over an interest-bearing product
People watch as the logo of Coinbase Global Inc, the largest U.S. cryptocurrency exchange, is displayed on the Nasdaq MarketSite jumbotron in Times Square in New York, the United States, on April 14, 2021.
Shannon Stapleton | Reuters
Coinbase has received notification from the Securities and Exchange Commission of a possible enforcement action related to its interest-bearing product that it is planning to launch in the coming weeks.
The cryptocurrency and services company received a Wells notice from the SEC last Wednesday that the regulator intends to sue Coinbase over the product called Coinbase Lend, the company announced in a blog post on Tuesday evening. The SEC did not immediately respond to a call for comment.
Coinbase’s shares fell 4% on Wednesday morning.
The company’s chief legal officer, Paul Grewal, said in the post that the company was surprised by the threat given its efforts to work with the regulator over the past six months. CEO Brian Armstrong said in a series of tweets that the SEC “refused” to meet with him on his trip to Washington, DC in May.
This visit came shortly after Coinbase became the first publicly traded crypto exchange and about a month after Gary Gensler was confirmed as chairman of the SEC.
“We are committed to obeying the law. Sometimes the law is unclear. If the SEC wants to publish guidelines, we’ll be happy to follow, ”Armstrong said in the tweets.
The product in question is billed in such a way that it enables users to earn an annual percentage return of 4% on a so-called stablecoin (USD Coin) by allowing Coinbase to lend these funds to verified borrowers. Coinbase supports USD Coin and guarantees that these can always be redeemed for 1 USD. High yield accounts have become popular with crypto users, with companies like BlockFi and Gemini also offering high returns on stablecoin and other cryptocurrency balances.
Armstrong said when the company first asked the SEC for a pre-launch briefing, the regulator replied that the lending function was a security. When the company asked the SEC to understand its views, the agency responded with a series of demands, which Armstrong said Coinbase complied with.
The product launch has been postponed to at least October.