SEC Plans to Sue Coinbase over Crypto Yield Program

The US Securities and Exchange Commission (SEC) will sue Coinbase over concerns of breaching security laws if the crypto exchange launches its yield program.

In a blog post published on Wednesday, Coinbase’s Chief Legal Officer, Paul Grewal detailed that the regulator sent the exchange a Wells notice, which officially tells a company that it is intending to sue the company.

According to Coinbase, it has been cooperating with the financial market watchdog for nearly six months over the upcoming launch of the Coinbase Lend program, which intends to offer users fixed interest for lending certain Cryptocurrencies .

Lending programs are not new in the cryptocurrency space and multiple other small and large companies are offering such services. “Other crypto companies have had lending products on the market for years, and new lending products continue to launch as recently as last month,” Coinbase pointed out.

Though the SEC has never busted any crypto company for yield programs, multiple state regulators have moved against BlockFi for offering similar services.

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

SEC's Opaque Investigation

Coinbase initially approached the SEC with its framework of the yield program. Further, it provided details and answered all questionnaires of the securities market regulator regarding the program.

“The SEC told us they consider Lend to involve a security, but wouldn’t say why or how they’d reached that conclusion,” Grewal said.

Instead of scrapping the program, Coinbase publicly announced it in June and opened a waitlist to onboard initial customers, all without setting any launch date.

The SEC then opened a formal investigation against the publically listed crypto exchange and asked for documents and written responses, along with sworn testimony by a corporate witness. Though Coinbase followed all the requirements, it did not provide the details of enrolled waitlist customers.

“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,” Grewal added.