• The SEC warns Coinbase about a lending product and threatens a lawsuit

  • The SEC issued a warning to Coinbase regarding its new Lend product, which could result in a lawsuit.

    One of the world’s largest exchanges may run into problems with the ominous US regulator. Coinbase Global Inc., the company behind the Coinbase exchange, has received an SEC warning regarding its most recent financial product.

    The Coinbase Lend project would provide its clients with the opportunity to earn interest on their cryptocurrency holdings. The exchange stated that it remained proactive with regulatory engagement in the run-up to the launch of this project.

    Brain Armstrong, CEO and co-founder of Coinbase, stated in a Tweet that the new Coinbase venture is nothing new in the financial world. “Over the last few years, millions of cryptocurrency holders have earned a return on their investments. It makes sense to earn a return on your money if you want to lend it out. Everyone appears to be content.”

    However, the CEO stated that the Securities and Exchange Commission was not pleased with this development. According to Armstrong, Coinbase notified the SEC about the product as a precaution. In exchange, the company received a probe.

    “They responded by saying that this lend feature is a security feature. Okay, that seems strange; how can lending be considered a security? So we ask the SEC to assist us in understanding and sharing their perspective,” Armstrong tweeted. “We always try to be proactive with regulators and keep an open mind.”

    Nonetheless, the US regulator has stated that if the Lend service is implemented, the company will face legal action. Coinbase’s Chief Legal Officer, Paul Grewal, confirmed this in a blog post. “The SEC has informed us that it intends to sue us over Lend. We’re not sure why.”

    Getting a Glimpse of the SEC

    Coinbase is now looking for an answer to the SEC’s mysterious threat. According to Grewal, the company requested a more detailed explanation of the regulator’s reasoning. “They’ve offered us the opportunity to submit a written defense of Lend, but that would be pointless because we don’t know the reasons for the SEC’s concerns,” Grewal continued.

    Furthermore, the SEC requested company records as well as the names and contact information of everyone on the Lend waitlist. Despite the fact that the company complied with the records, the names on the waitlist remain private.

    “We have not agreed to provide that because we take a very cautious approach to requests for personal information from customers,” Grewal explained. “We also do not believe it is relevant to any specific questions the SEC may have about Lend involving a security, particularly since the SEC has refused to share any of those questions with us.”

    This comes as the SEC tightens regulations and increases surveillance of the crypto domain. SEC Chair Gary Gensler backs officials like Elizabeth Warren, who earlier this summer called for “Crypto Cops.” The SEC opened a new investigation into the cryptocurrency company Uniswap last week.

    As the crypto industry awaits potentially harmful regulations from the SEC these new crackdowns do not appear crypto-forward. In light of these updates, Coinbase intends for a delay in the launch of Lend at least until October.

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