What Is a Wells Notice and Why Does It Matter in Crypto?
Crypto Basics

What Is a Wells Notice and Why Does It Matter in Crypto?

Created 5mo ago, last updated 5mo ago

This article dives into Wells Notice, the SEC's weapon of choice that can freeze assets and cripple crypto companies.

What Is a Wells Notice and Why Does It Matter in Crypto?

Table of Contents


  • The crypto industry is facing regulatory challenges in the US.
  • A Wells notice is a warning from the SEC, giving recipients time to respond before legal action.
  • The definition of a security in the crypto industry is unclear, with conflicting views from regulators.
  • Wells notices can lead to reputational damage, fines and shutdown of services.
  • The SEC issues Wells notices after investigating potential violations and reviews the firm's response before deciding on enforcement action.
  • Wells notices are not subpoenas; they are warnings, while subpoenas require evidence.
  • Wells notices can impact the crypto market, causing price volatility and limiting product offerings.

Join us in showcasing the cryptocurrency revolution, one newsletter at a time. Subscribe now to get daily news and market updates right to your inbox, along with our millions of other subscribers (that’s right, millions love us!) — what are you waiting for?


While the crypto industry is working tirelessly to comply with the regulatory aspect in the US, regulators and the SEC are actively targeting many different players in the industry. In this article, CoinMarketCap Academy discusses one of the most feared words in crypto-land: the Wells Notice.

On March 22 this year, public company and popular crypto trading platform, Coinbase, received one of those dreaded Wells notices. Shortly after receiving this letter from the SEC, Coinbase CEO Brian Armstrong tweeted the following:
View post on Twitter
The Wells notice comes in a series of actions from the U.S. Securities and Exchange Commission – which has been fining and investigating crypto firms across the board recently.

Coinbase was not the first crypto firm to receive a Wells notice, as stablecoin issuer, Paxos, was issued a similar letter from the SEC regarding the stablecoin. Let’s dive into what this all means, the potential consequences, and how it affects crypto.

What Is a Wells Notice?

A Wells notice is a formal notice from by the U.S. Securities and Exchange Commission (SEC), issued to inform individuals or firms of potential violations of securities laws. Essentially, it serves as a warning, giving the recipient of the notice some time to respond to the alleged violations before the SEC takes legal action.

Wells notices are issued for a variety of reasons, such as market manipulation or facilitating the trade of unregistered securities.

When a company receives this notice, it can have far-reaching consequences on its reputation – but firms are not legally obliged to disclose receipt of a Wells notice. For instance, Kraken recently settled a matter with SEC concerning its staking program – which led certain opinion leaders in the industry to believe they were issued a Wells notice as well. Whether this is true or not, remains unknown. In any case, when the SEC issues a Wells notice, firms tend to respond rather quickly.

What Is a Security?

As Wells notices are issued when companies or individuals are potentially in violation of U.S. Securities laws, it is important to understand what a security is. Sadly, this is precisely the challenge many crypto firms face: the regulatory environment is unclear.
While there are reasonably straightforward guidelines about what is a security (the Howey test, for example), the SEC has been ambiguous about whether cryptocurrencies, like Ethereum, are securities.
In a recent Congressional hearing that also covered the FTX bankruptcy saga, SEC Chair Gary Gensler refused to say whether he believed Ethereum was a security.
It got even more confusing when the Commodity Futures Trading Commission (CFTC) called Ethereum a “commodity,” while the State Attorney General of New York asserts that it is a security. All in all, when it comes to crypto, the answer to the question “what is a security” remains unclear.

Let’s get back to the main topic:

Why Is It Called a “Wells Notice”?

The term and concept of a Wells notice was born in the seventies when the Wells Committee was founded. The committee, led by its namesake John. A Wells, consisted of at least four other members – whose primary objective was to assess the SEC law enforcement practices and policies. After careful assessment and consideration, they proposed several procedures that were incorporated into the current SEC policy. One of these procedures is what is known today as the Wells notice.

Essentially, the Wells notice was named after the chairman of the commission that invented the concept.

What Are the Potential Consequences of a Wells Notice?

When a firm receives a Wells notice, it serves as a warning that the SEC staff is considering enforcement action, which may harm the firm’s reputation. But what are the other consequences of a Wells notice?

Firstly, the firm may face sanctions, fines or other forms of crackdown. They may also be forced to shut down certain services.

If the SEC decides to proceed with enforcement actions after issuing the Wells notice, it may freeze a firm’s assets or file formal complaints against the company in a federal court. This starts a lengthy and complicated legal proceeding, where the firm will have the opportunity to defend itself in front of a judge.

How and Why Does the SEC Serve a Wells Notice?

A Wells notice does not suddenly appear out of nowhere. In fact, there is a process that leads up to it, and the issuance of a notice kickstarts a process of follow-up steps as well.

The SEC exists to provide regulatory clarity and enforces the federal securities laws. Its primary goal is to protect investor interests and prevent wrongdoing. Issuing a Wells notice is just one of the many tools SEC has at its disposal to do its job. Generally speaking, the process of issuing such a notice looks something like the following:

  1. The SEC launches and completes an investigation into a company they believe to be in violation of one or more securities laws, gathering evidence of the alleged violations.
  2. The SEC issues a Wells notice to the company they believe to be in violation of one or more securities laws – outlining the investigation and specifying the potential consequences of the alleged violations.
  3. The firm that received the notice has 30 days to respond to the allegations to build a case for their innocence.
  4. The SEC carefully reviews the firm’s response to the Wells notice and decides whether it will proceed with enforcement action.

Essentially, the Wells notice is a tool for the SEC to enter discussions with an individual or firm that they find to be in potential violation of securities laws, allowing them to clarify their position before deciding on whether to press charges.

What Is the Procedure for a Wells Response?

After receiving a Wells notice, a firm has 30 days to respond to it. Generally speaking, firms quickly seek legal counsel from experienced securities law attorneys to respond appropriately.

From there, a legal team carefully weighs the options in collaboration with the firm’s leadership. If the firm decides to fight the case, the evidence must be gathered to support the firm’s innocence, which can be presented to the regulator in response.

Are Wells Notices and Subpoenas the Same Thing?

While both Wells notices and Subpoenas may be issued by regulatory bodies such as the SEC, Finra or CFTC, they are very different. A wells notice – as discussed in this article – is merely a warning of potential enforcement action, whereas a subpoena is an order signed by a judge that requires the recipient to provide evidence in an investigation or legal proceeding – so they are fundamentally different!

How Does a Wells Notice Affect the Crypto Market?

Wells notices can have far-reaching consequences for the cryptocurrency market. Not only did the Wells notice to Coinbase cause an 8% move in Bitcoin prices, but it may also force the crypto exchange to shut down its staking service or parts of its spot market offering.  Similarly, the Wells notice to Paxos forced the blockchain infrastructure platform to shut down the issuance of new BUSD tokens, reducing the competition in the stablecoin space.

All in all, this type of notice not only causes volatility but also may reduce the products and services available in the crypto industry. All we can do is hope that the SEC stays true to its mission of protecting investor interests.

Writer’s Disclaimer: This article is based on my limited knowledge and experience. It has been written for educational purposes. It should not be construed as advice in any shape or form. Please do your own research.

This article contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. CoinMarketCap is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation by CoinMarketCap of the site or any association with its operators. This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice. The views and opinions expressed in this article are the author’s [company’s] own and do not necessarily reflect those of CoinMarketCap. CoinMarketCap is not responsible for the success or authenticity of any project, we aim to act as a neutral informational resource for end-users.
3 people liked this article