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Shares of Coinbase (NASDAQ: COIN) are down about 3% in pre-open Wednesday after the largest cryptocurrency exchange in the US said it has received a Wells notice from the Securities and Exchange Commission (SEC).
The regulator has told COIN that it plans to take enforcement action if the crypto exchange launches its crypto lending program “Lend.”
The company said it has talked to SEC for about 6 months about its product, which allows consumers to earn interest on select assets. A Wells notice from the SEC has now prompted the exchange to delay the launch until at least October.
“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. Yet again, we asked if the SEC would share their reasoning with us, and yet again they refused. They have only told us that they are assessing our Lend product through the prism of decades-old Supreme Court cases called Howey and Reves. The SEC won’t share the assessment itself, only the fact that they have done it. These two cases are from 1946 and 1990,” the company’s CLO Paul Grewal said in a blog post.
“Formal guidance from the SEC about how they intend to apply Howey and Reves tests to products like Lend would be a big help to regulating our industry in a responsible way. Instead, last week’s Wells notice tells us that the SEC would rather skip those basic regulatory steps and go right to litigation. They’ve offered us the chance to submit a written defense of Lend, but that would be futile when we don’t know the reasons behind the SEC’s concerns,” he further added.
Coinbase said it will provide documents and responses to what the SEC has asked for, while their employee has already spent a full day last month with the regulator to testify about the product.
