(Bloomberg) – The CEO of Coinbase Global Inc. lashed out at the Securities and Exchange Commission (SEC) for its “really vague behavior” after the company received a warning that regulators plan to sue it.
Chief Executive Officer Brian Armstrong said on Twitter that the SEC would create an unfair market if it tries to shut down its new loan product, which would allow consumers to earn interest on their cryptocurrency holdings. Coinbase, the largest cryptocurrency exchange in the United States, reported in a blog post that the SEC issued a notice from Wells and opened a formal investigation. A Wells notice is the official way that a regulator notifies a company that it intends to sue the company.
“We are threatened with legal action before any real guidance has been given to the industry,” Armstrong wrote on Twitter. “Litigation regulation should be the SEC’s last resort, not the first.”
The question centers on Coinbase’s product called Lend, which the company has touted as a high-yielding alternative to traditional savings accounts that could earn a 4% annual return. The product has yet to launch, but Coinbase encouraged customers in June to sign up for pre-registration.
The debate over whether DeFi (decentralized finance) loan pools can be considered securities is becoming a key legal battleground for the SEC. In part, it depends on whether these products meet the definition of “investment contracts” established in the 1946 Howey judgment of the Supreme Court, which defined such contracts as “the investment of money in a joint venture with a reasonable expectation of profit. that are derived from the efforts of others ”.
In recent months, various state agencies have issued warnings about similar BlockFi Lending LLC accounts.
The SEC did not respond to an email or phone call from Bloomberg News overnight.
Coinbase said it has been “proactively involving” the SEC over Lend for six months, and expressed surprise at the possible legal action.
“The SEC has told us that it wants to sue us over Lend. We have no idea why, ”wrote the company’s chief legal officer, Paul Grewal. He added that the SEC has told Coinbase that it considers Lend “to imply a security, but did not say why or how they reached that conclusion.”
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