In response to Brian Armstrong’s revelation that the SEC had threatened to sue Coinbase, the SEC stated, “They refuse to tell us why they believe Coinbase is a security and instead subpoena a bunch of records from us.”
The Securities and Exchange Commission (SEC) of the United States has reportedly threatened to sue Coinbase over a cryptocurrency yield program that it considers to be a security.
Coinbase CEO Brian Armstrong tweeted on September 8 that the Securities and Exchange Commission had engaged in some “really sketchy behavior recently,” before launching into a 21-post thread documenting the SEC’s encounters with the company.
It was early this year that the crypto exchange approached regulators at the Securities and Exchange Commission (SEC) to inform them of the upcoming Coinbase Lend program, which would offer a 4 percent annual yield back on deposits of the USDC stablecoin.
Coinbase CEO claims that the SEC responded by informing the company that their loan product is a security without providing any reason, and that the SEC threatened to sue if the service went live:
“They refuse to tell us why they think it’s a security, and instead subpoena a bunch of records from us (we comply), demand testimony from our employees (we comply), and then tell us they will be suing us if we proceed to launch, with zero explanation as to why.”
There are other cryptocurrency organizations on the market that are now providing similar loan services to their consumers, and Armstrong has called on the SEC to provide regulatory clarification on the subject.
If Armstrong’s reporting of the SEC’s activities is correct, the measures appear to be bad news for competitors BlockFi and Celsius, both of which already provide crypto income products to investors. BlockFi is the subject of investigations in a number of states because to the exorbitant interest rates on its products.
7/ Look….we’re committed to following the law. Sometimes the law is unclear. So if the SEC wants to publish guidance, we are also happy to follow that (it’s nice if you actually enforce it evenly across the industry equally btw).
— Brian Armstrong (@brian_armstrong) September 8, 2021A blog post released today by Coinbase Chief Legal Officer Paul Grewal highlighted his displeasure with the SEC’s actions, questioning whether the lending feature can be classified as a “investment contract” or as a note.
In contrast to traditional investment vehicles, customers will be lending their USDC holdings on Coinbase’s platform in connection with their existing relationship, rather than putting their money at risk.
While Lend users will receive interest as a result of their participation in the program, we are under a duty to pay that interest regardless of Coinbase’s larger commercial activities,” he explained.
1/ The SEC isn’t protecting investors, or promoting fair, efficient, & safe domestic crypto markets with their intimidation tactics. Their approach has been so poor it’s indistinguishable from an active effort to *hurt* American retail investors, which looks increasingly likely. https://t.co/nqFZKB9G1m
— Ryan Selkis (@twobitidiot) September 8, 2021Grewal went on to add that the only clarification supplied by the firm is that the lending program is now being evaluated in accordance with the Howey Test, which is as follows:
“They have only told us that they are assessing our Lend product through the prism of decades-old Supreme Court cases called Howey and Reves. The SEC won’t share the assessment itself, only the fact that they have done it.”
What the fuck https://t.co/JuzFIcMpo8
— Erik Voorhees (@ErikVoorhees) September 8, 2021Gary Gensler, the chairman of the Securities and Exchange Commission, has repeatedly pushed cryptocurrency companies to collaborate with the SEC so that they can function within public frameworks and assure their long-term existence. Grewal stated that the SEC’s actions appear to be in direct conflict with Gensler’s statements:
“The SEC has repeatedly asked our industry to ‘talk to us, come in.’ We did that here. But today all we know is that we can either keep Lend off the market indefinitely without knowing why or we can be sued.”
“A healthy regulatory relationship should never leave the industry in that kind of bind without explanation. Dialogue is at the heart of good regulation,” he said.
Since the SEC has not responded to Grewal’s request for additional information, the firm has decided to delay the start of its loan program until at least October.
Unclear what impact SEC news will have in the immediate, this wasn’t common knowledge and along with the dump this caught many off guard.
General sense of uneasiness, didn’t make me feel good.
I’m going to let the big boys settle the market, just watching now.
— The Crypto Dog (@TheCryptoDog) September 8, 2021