Now, though, Coinbase wants to offer a product called “Lend,” which would pay interest on cryptocurrency that customers park at the exchange. It doesn’t take a legal genius to recognize that such an offering would attract regulators’ attention, particularly when regulators have warned that they intend to subject crypto to greater scrutiny. There’s a strong case to be made that it’s essentially a bank account, and should be regulated as one. It also fits the Supreme Court’s well-known definition of an investment contract — a form of security that, as the SEC recently put it, entails “the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”So it should have come as no surprise when, on Sept. 1, Coinbase received a formal SEC notification, known as a Wells Notice, which the company said threatened civil injunctive action if it went ahead with the Lend product. Yet when CEO Brian Armstrong first disclosed the SEC’s notice in a series of late-night tweets on Sept. 7, he took the agency to task for not playing fairly, expressing dismay at its “sketchy behavior” and complaining that it had provided “zero explanation.” This was followed by an indignant blog post from Coinbase’s chief legal officer, an official company filing disclosing the Wells Notice, and much fervent discussion among finance geeks on Twitter.
