Announcing the news, a punchy blog post from the exchange said: "We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead."
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Coinbase has received a Wells notice from the U.S. Securities and Exchange Commission — indicating that enforcement action could follow.
Brian Armstrong says the notice relates to staking and asset listings — and on Twitter, he expressed frustration at the regulator's actions.
"Two years ago the SEC reviewed our business in detail and approved Coinbase to go public. Our S1 clearly explained our asset listing process and included 57 references to staking."
He argued that Coinbase is incredibly selective when it comes to the cryptocurrencies it lists — rejecting more than 90% of applications.
And Armstrong insisted that the exchange is "right on the law and confident in the facts" — and would welcome the opportunity to battle the SEC in court.
The CEO said the company "will be able to make clear for all to see that the SEC simply has not been fair, reasonable, or even demonstrated a seriousness of purpose when it comes to its engagement on digital assets."
'Tell Us the Rules'
His Twitter thread was followed up by a punchy blog post headlined:
"We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead."
That post described the Wells notice as a "disappointing development" — but stressed that Coinbase's products and services are continuing to operate as normal.
Chief legal officer Paul Grewal wrote:
"The SEC staff told us they have identified potential violations of securities law, but little more. We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so."
He went on to argue that Coinbase's business has been little changed since the company went public in 2021, a process that the SEC had to approve.
And hitting out at what he describes as regulation through enforcement, Grewal added:
"We continue to think rulemaking and legislation are better tools for defining the law for our industry than enforcement actions. But if necessary, we welcome the opportunity for Coinbase and the broader crypto community to get clarity in court."
Grewal expressed exasperation that the SEC won't let crypto companies "come in and register" — and stressed that Coinbase had unsuccessfully tried to do so.
He revealed that the exchange had spent millions of dollars in order to propose two potential ways that a crypto firm could register with the SEC, but didn't get any feedback.
"Regulatory uncertainty in the crypto industry is getting worse. Instead of developing a regulatory framework for crypto, the SEC is continuing to regulate by enforcement only."
Grewal also criticized disagreements between different regulatory agencies in the U.S. — namely the SEC and the Commodity Futures Trading Commission.
While SEC chair Gary Gensler has suggested that Bitcoin may be the only commodity in the cryptoassets space, CFTC chair Rostin Behnam has argued that Ethereum should be classified as one too.
"If our regulators cannot agree on who regulates which aspects of crypto, the industry has no fair notice on how to proceed. Against this backdrop, it makes no sense to threaten enforcement actions against trusted public companies like Coinbase who are committed to playing by the rules."
Grewal went on to stress that Coinbase doesn't list securities, and had a simple message for the SEC.
"Tell us the rules and we will follow them. Give us an actual path to register, and we will register the parts of our business that need registering. In the meantime, the U.S. cannot afford for regulators to continue to threaten the good actors in the crypto industry for doing the same legal and compliant things they've always done. This unfair approach will only drive innovation, jobs, and the entire industry overseas."
Crypto Twitter Reacts
News of the Wells notice didn't go down well among executives in the crypto industry.
Caitlin Long, the founder and CEO of Custodia Bank, noted that this came hot on the heels of a critical report about cryptocurrencies from the White House. She wrote:
"IT SHOULD BE CRYSTAL CLEAR BY NOW that the Biden Administration wants all #crypto (even the legit parts of it)--run out of the U.S."
She also said the timing of what the SEC is investigating will prove crucial.
"If any of this SEC action predates Coinbase's IPO, then the SEC stepped in it. The SEC’s remit is investor protection. How did it protect investors to let a company IPO if it was violating securities laws?"
