Coinbase Slams ‘Regulation By Litigation’ As SEC Threatens To Sue Over Lending Product

Coinbase Slams ‘Regulation By Litigation’ As SEC Threatens To Sue Over Lending Product

Topline

The U.S. Securities and Exchange Commission has threatened to take legal action against cryptocurrency trading platform Coinbase if it follows through with plans to launch a crypto lending product, according to company executives Wednesday, who criticized the regulator’s decision to “skip basic regulatory steps” and jump straight to litigation without providing guidance to the industry.

Key Facts

The SEC issued Coinbase with a Wells notice—a formal warning that the agency intends to sue—if it carries through with plans to launch the new product, called Lend, chief legal officer Paul Grewal said in a blog post.

Grewal said the regulator considered Lend, which allows users to earn interest on digital assets, a security, a designation the company does not agree with.

Grewal, alongside Coinbase co-founder and chief executive Brian Armstrong, said the agency refused to explain how or why it made the decision and accused it of eschewing standard regulatory protocol in favor of legal action, all without providing “a single bit of actual guidance” to the industry on these kinds of products.

Armstrong, who said the SEC also requested records and testimony from employees, accused the regulator of “sketchy behavior” and of making a “land grab” compared to other regulators.

Lend’s launch will be delayed until “at least October” amid the regulatory uncertainty, Grewal said.

The SEC did not immediately respond to Forbes’ request for comment.

Crucial Quote

Armstrong said Coinbase is “committed to following the law” and acknowledged that this is sometimes unclear. However, he said the SEC has not published any guidance for industry and was the only regulator to decline meeting with him when he travelled to Washington, D.C., in May. “If we end up in court we may finally get the regulatory clarity the SEC refuses to provide,” Armstrong tweeted. “But regulation by litigation should be the last resort for the SEC, not the first.”

Key Background

In April, Coinbase made history as the first major cryptocurrency company to go public in the U.S. Its success signaled crypto’s move towards the mainstream and highlighted the lack of clear regulations covering the sector. It’s a gap regulators around the world are keen to rectify and SEC chair Gary Gensler has told a House committee there was a possible need for dedicated legislation governing crypto exchanges.

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