Coinbase warned by SEC of potential securities charges

In this photo illustration, the Coinbase logo is displayed on a smartphone screen.

Rafael Henrique | SOPA Images | Lightrocket | Getty Images

The Securities and Exchange Commission issued crypto exchange Coinbase a Wells notice, warning the company that it identified potential violations of U.S. securities law.

“Based on discussions with the Staff, the Company believes these potential enforcement actions would relate to aspects of the Company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet,” Coinbase said in a regulatory filing. “The potential civil action may seek injunctive relief, disgorgement, and civil penalties.”

A Wells notice is typically one of the final steps before the SEC formally issues charges. It generally lays out the framework of the regulatory argument and offers the potentially accused an opportunity to rebut the SEC’s claims.

Coinbase described the investigation as “cursory,” and said the Wells notice provided relatively little information about potential violations.

The company said that until the resolution of any legal processes, the exchange’s offerings would continue to operate as usual.

Coinbase executives, including founder and CEO Brian Armstrong, have pushed back against perceived overreach by the SEC, which has moved aggressively against the crypto industry since the collapse of FTX in November. At the direction of SEC chair Gary Gensler, the regulator has issued enforcement actions against multiple heavyweights, including Gemini, Genesis, TRON executive Justin Sun, Do Kwon, and crypto exchange Kraken.

“We are prepared for this disappointing outcome and confident in the legality of our assets and services,” Coinbase Chief Legal Officer Paul Grewal said in a statement to CNBC. “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.”

The SEC sent a Wells notice to stablecoin issuer Paxos in February. “We will engage with the SEC staff on this issue and are prepared to vigorously litigate if necessary,” a Paxos spokesperson told CNBC at the time.

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