SEC Threatens Legal Action Against Coinbase over Crypto Firm’s Proposed Lending Scheme

Coinbase CEO Brian Armstrong disagrees with the SEC threat, adding that the Commission is simply threatened by the lending program.

The Securities and Exchange Commission (SEC) is threatening to sue Coinbase Global Inc (NASDAQ: COIN) over the American exchange’s proposed crypto lending program. According to a recent report, the Commission served Coinbase with a Wells notice, a document that informs the receiver about an impending lawsuit. This came about after Coinbase said its users would soon be able to earn interest by lending crypto assets. Coinbase’s planned program, dubbed Lend, would allow users to earn double-digit yields on USDC deposits on its platform

Coinbase’s chief legal officer, Paul Grewal, indicated that the company expects to push back its proposed initiative due to the regulatory check. Grewal said in a blog post that Coinbase would delay its ‘Lend’ plans until October at the very least. He further stated that the SEC served Coinbase the notice because it believed his company’s ‘Lend’ product to be a security. However, Grewal said that Coinbase disagrees with the Commission’s opinion regarding this. Grewal stated that Coinbase has “been proactively engaging with the SEC about Lend for nearly six months.”

Coinbase CEO Weighs In on the SEC Order Over Its Crypto Lending Product

Coinbase CEO Brian Armstrong responded to the SEC’s planned enforcement against his company. Armstrong said that the SEC gave no guidance on compliance with existing laws even after Coinbase made contact. The CEO says his company intimated the Commission about its yield product and was simply told that the offering is a security. 

6/ They refuse to tell us why they think it’s a security, and instead subpoena a bunch of records from us (we comply), demand testimony from our employees (we comply), and then tell us they will be suing us if we proceed to launch, with zero explanation as to why.

— Brian Armstrong (@brian_armstrong) September 8, 2021

Armstrong also stated that the Commission did not meet with him during a Washington DC visit earlier this year. In his own words:

“The SEC was the only regulator that refused to meet with me, saying ‘we’re not meeting with any crypto companies.’”

Armstrong suggested that the SEC’s refusal to meet happened soon after Coinbase became the first publicly-listed crypto company in the US.

There is a growing number of similar interest-bearing crypto-lending programs around the world. However, some regulators, most especially in the United States, are skeptical about such schemes. They believe these crypto-lending programs should comply with existing securities laws.

There is also a growing number of cease-and-desist issuances to exchanges that practice crypto-lending or interest-bearing activities in the US. A typical example is when New Jersey ordered BlockFi Inc to stop offering interest-bearing accounts to investors in July. The crypto firm generated up to $14.7 billion in investment through this practice.

Coinbase offers other yield generating services in addition to its proposed ‘Lend’ plans. The exchange utilizes proof-of-stake protocols like Ethereum 2.0 and Tezos.


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