SEC threatens to sue Coinbase over crypto yield program it considers a security. “Instead of explaining why they consider it a security, they subpoena a number of records from us”, stated Brian Armstrong after he proclaimed that the SEC threatened to prosecute Coinbase.
According to reports, the US Securities and Exchange Commission has menaced to prosecute Coinbase over a crypto yield program it considers as security.
Coinbase CEO Brian Armstrong wrote on Twitter on Wednesday that “recently SEC has been behaving inadequately”, before launching into a 21 post thread delineating the SEC’s dealings with the company.
Coinbase approached the SEC earlier this year
Armstrong explained that Coinbase leapt to the attention of the SEC earlier this year to let the enforcement body know about the plan to offer 4% annual yield returns on deposits of USD Coin (USDC) stablecoin. However, according to Coinbase’s CEO, the SEC’s response was to inform the company that the lending program is security without any further illustration. Moreover, SEC threatened to prosecute Coinbase in case they launched the program.
Armstrong clarified that there numerous crypto companies on the market that presently offering analogous lending services to their clients. Those companies asked the SEC for regulatory clarification on the topic.
In case the statements of Armstrong are precise, the SEC’s behaviour considers to be unpleasant news for rivals such as BlockFi and Celsius, which as well provide crypto yield services. BlockFi as well is undergoing an investigation in numerous cases over its high-interest products.
Investment contract or a note
Paul Grewal, chief legal officer of Coinbase, conveyed his dread in a blog post on Wednesday in regard to the SEC’s actions. As he questioned the emphasis that the lending feature constitutes an “investment contract or a note”.
The program will not be considered an investment for customers. But merely a way to loan USDCs they have stored on Coinbase’s platform. “And even though Lend customers will earn interest through engaging in the program, we have a responsibility to pay this interest regardless of Coinbase’s larger business activities,” he added.
Grewal further clarified that the only elucidation the firm has provided is that the lending program is at the moment undergoing an evaluation under the Howey Test.
Gary Gensler, SEC’s boss, has more frequently advised crypto firms to cooperate with the SEC. So that they can perform under public frameworks and guarantee their existence. Nonetheless, Grewal pointed out a questioned contradiction between the SEC’s actions and Gensler’s statements.
“a solid regulatory collaboration should never leave the industry in such opaque situation without explanation. Communication is the cornerstone of a good regulation”. He said
Grewal confirmed that Coinbase will put the launching of the lending program on hold until at least October. Meanwhile, the company is waiting for further feedback from the SEC.