SEC Threatens To Sue Coinbase Over Lend Program

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The U.S. Securities and Exchange Commission has threatened to sue cryptocurrency exchange Coinbase over its cryptocurrency yield program called Coinbase Lend. The SEC is considering it a security and it refuses to tell Coinbase why they think it's a security, and instead threatened to sue if the Lend service was launched.

According a blog by Coinbase Chief Legal Oficer Paul Grewal, the SEC has given them what's called a Wells notice last week about the planned Coinbase Lend program, despite nearly six months of effort by Coinbase to engage productively with the SEC. A Wells notice is the official way a regulator tells a company that it intends to sue the company in court.

Coinbase is seeking to allow eligible customers to earn interest on select assets on the platform, starting with 4 percent Annual Percentage Yield (APY) on stablecoin USD Coin (USDC) as it explores innovative ways for its customers to gain more financial empowerment on Coinbase.

This threat of suing comes at a time when other cryptocurrency companies have had lending products on the market for years, and new lending products continue to launch as recently as last month. Coinbase took the product to the SEC for approval even though they could have simply launched the product.

Coinbase had announced the Lend program publicly in June and opened a waitlist but did not set a public launch date.

Coinbase notes that the Lend program doesn't qualify as a security or to use more specific legal terms, it's not an investment contract or a note. Customers will not be investing in the program, but rather lending the USDC they hold on Coinbase's platform.

The company added that Lend customers will earn interest from their participation in the program, while their principal is secure and Coinbase is obligated to repay their USDC on request.

Despite all engagements with them, the SEC told Coinbase that they consider Lend to involve a security, but would not say why or how they had reached that conclusion.

The SEC instead opened a formal investigation, asking for documents and written responses, which were willingly provided to them. They also asked Coinbase to provide a corporate witness to give sworn testimony about the program, a complete and transparent testimony about Lend.

Despite Coinbase keeping Lend off the market and providing detailed information, the SEC still is not explaining why they see a problem. The SEC has now told Coinbase that if Lend is launched, they intend to sue.

Coinbase noted that the net result of all this is that it will not be launching Lend until at least October. Coinbase added that it continues to welcome additional regulatory clarity as mystery and ambiguity only serve to unnecessarily stifle new products.

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