Coinbase, the leading crypto exchange in the United States, has reportedly received a fresh legal threat from the United States Securities and Exchange Commission(SEC) over a highly anticipated crypto yield program launch, now considered a security.
In a September 8 Twitter post, Brian Armstrong, CEO at Coinbase, confirmed receiving fresh lawsuit threats from the SEC, a few weeks before its highly anticipated crypto yield program launch, describing the action as “really sketchy behavior coming out of the SEC recently.”
Coinbase woes started increasing earlier this year after the crypto exchange approached the SEC to seek approval over the up-and-coming Coinbase Lend program that intends to offer a 4% annual yield return on deposits made through USD Coin (USDC) stablecoin.
According to Coinbase CEO, the SEC responded by telling the firm that the lending program is a security without any explanation and threatened to file a lawsuit once the program launched:
“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.”
Nonetheless, Armstrong argues that the SEC acted unfairly and in bad faith since there are other crypto firms on the market currently offering similar lending program services to their customers.
But, Coinbase has not pointed out directly what firms already offer the same crypto yield products since the report would appear as bad news for competitors BlockFi and Celsius. Currently, BlockFi faces fresh investigation in several states over its high-interest products.
7/ Look….we're committed to following the law. Sometimes the law is unclear. So if the SEC wants to publish guidance, we are also happy to follow that (it's nice if you actually enforce it evenly across the industry equally btw).
— Brian Armstrong (@brian_armstrong) September 8, 2021
While commenting about the matter, Paul Grewal, chief legal officer of Coinbase, expressed his dismay at the SEC’s actions questioning the assertion of the lending feature, which can be considered to be an “investment contract or a note,” adding:
“Customers won’t be ‘investing in the program, but rather lending the USDC they hold on Coinbase’s platform in connection with their existing relationship. And although Lend customers will earn interest from their participation in the program, we have an obligation to pay this interest regardless of Coinbase’s broader business activities.”
1/ The SEC isn’t protecting investors, or promoting fair, efficient, & safe domestic crypto markets with their intimidation tactics.
Their approach has been so poor it’s indistinguishable from an active effort to *hurt* American retail investors, which looks increasingly likely. https://t.co/nqFZKB9G1m
— Ryan Selkis (@twobitidiot) September 8, 2021
Grewal continued to explain that the only clarification SEC has issued is that the lending program is currently being assessed, under the Howey Test:
“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.”
What the fuck https://t.co/JuzFIcMpo8
— Erik Voorhees (@ErikVoorhees) September 8, 2021
On several occasions, Gary Gensler, the SEC Chairman, has urged crypto firms to work closely with the SEC to operate smoothly in a public framework and guarantee their survival in the market. But in a subsequent tweet, Grewal said SEC’s action appears to contradict Gensler opinion amid lack of unjustified treatments:
“The SEC has repeatedly asked our industry to ‘talk to us, come in.’ We did that here. But, today all we know is that we can either keep Lend off the market indefinitely without knowing why or we can be sued.”
Grewal further asserted:
“A healthy regulatory relationship should never leave the industry in that kind of bind without explanation. Dialogue is at the heart of good regulation.”
In the meantime, Grewal in great turmoil has confirmed that the crypto exchange has called off the highly anticipated launch of the lending program previously set to happen in October, while it waits for further feedback from the SEC.
Unclear what impact SEC news will have in the immediate, this wasn't common knowledge and along with the dump this caught many off guard.
General sense of uneasiness, didn't make me feel good.
I'm going to let the big boys settle the market, just watching now.
— The Crypto Dog📈 (@TheCryptoDog) September 8, 2021