Coinbase CEO Criticizes SEC After Exchange Receives Wells Notice

Last updated on September 20th, 2023 at 09:39 am

Brian Armstrong, CEO and co-founder of Coinbase, has criticized the lack of clarity surrounding cryptocurrency regulation in the U.S., likening the SEC to “soccer referees” in a game of pickleball. Armstrong’s comments come after Coinbase received a Wells Notice from the SEC on March 22, 2023.

1/ Today Coinbase received a Wells notice from the SEC focused on staking and asset listings. A Wells notice typically precedes an enforcement action.
— Brian Armstrong (@brian_armstrong) March 22, 2023

The CEO of Coinbase expressed dissatisfaction with the current situation, as U.S. regulators have yet to provide clear guidelines on how to regulate cryptocurrencies. This ongoing lack of clarity has sparked discussions about who should be the primary organization in charge of overseeing the cryptocurrency market.

Armstrong argued that the company’s filings to the Securities and Exchange Commission’s (SEC) approval of Coinbase’s application to go public in 2021 contained 57 references to staking and adequately outlined its asset listing process.

Armstrong described the development like this:

“Imagine you’ve got both football and soccer refs on the field, but we’re actually playing pickleball (fastest growing new sport in America). The refs can’t really agree on the rules of this new game, and one of them decides to change a call they made back in April 2021.”

Coinbase’s Chief Legal Officer, Paul Grewal, also expressed disappointment and took to Twitter to criticize the U.S. SEC’s decision. He stated that Coinbase had attempted to have a constructive dialogue with the regulatory body and had met with the SEC more than 30 times over the past nine months to share details of their business and build a path to registration. Despite these efforts, Grewal claimed that the SEC had provided no feedback on what changes were necessary or how to register.

For comparison, over many years we have been able to successfully become a licensed and regulated crypto business in a number of other jurisdictions around the world, including Singapore, Ireland, Australia, and Germany. 6/15
— paulgrewal.eth (@iampaulgrewal) March 22, 2023

Grewal highlighted that Coinbase had acquired broker licenses in the past, which remained dormant, and had filed a petition for regulatory clarity, and they had yet to receive a response. He compared the hostile attitude of the SEC to that of other countries such as Singapore, Australia, Ireland, and Germany, where Coinbase had been successfully registered and licensed.

Meanwhile, Armstrong has consistently maintained that Coinbase’s staking services are not securities and that the company would be willing to defend this position in court if necessary. This contrasts with other companies, such as Kraken, that reached a settlement with the SEC, requiring them to stop providing staking services to U.S. customers.

The crypto community has supported Coinbase, with many condemning the Wells notice as an overreach by the SEC. Some have also criticized the SEC for going back on its earlier position regarding Coinbase.

SEC (April 2021): “Go right ahead and issue stock to the American public @Coinbase, we approve of $COIN‘s business lines and disclosures”
SEC (March 2023): “We are suing you @Coinbase for the exact business lines and disclosures we approved prior to your listing of US shares”
— Mike Dudas (@mdudas) March 22, 2023

A Wells notice is a letter the SEC sends to inform individuals or organizations that it intends to take enforcement action against them after concluding an investigation. The notice informs the parties involved or the company in question that the SEC has determined they should be charged with violating the Securities Act.

As previously reported, Coinbase submitted a petition to the SEC on March 16, 2023, challenging the classification of stakes as securities. This was in response to the SEC’s crackdown on Kraken’s staking program.

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