SEC issues Wells Notice to Coinbase on its Lend Program

TL;DR Breakdown:

• The United States SEC has warned Coinbase to discontinue its plan for Lend, saying it is a security.
• The regulator threatened to sue the exchange if they ignored the warning.

Leading US cryptocurrency exchange Coinbase disclosed on Wednesday it received a Wells Notice from the country’s Securities and Exchange Commission (SEC) regarding its planned Lend program. The regulator has asked the exchange to discontinue its plans of launching the crypto lending service, without giving a detailed reason for the judgment.

A Wells notice is the official way a regulator informs a company on its plans to sue them in court.

SEC threatens to sue Coinbase

As per Coinbase, the SEC threatened to sue them if they ignored their warning and proceeded to launch the Lend program. The regulator mentioned that such service involved security. However, they “wouldn’t say why or how they’d reached that conclusion.” 

As the exchange tried to further engage the SEC regarding their stance on the product, the regulator said “they are assessing our Lend product through the prism of decades-old Supreme Court cases called Howey and Reves.” The SEC offered the exchange a chance to file a written defense of the Lend program. However, Coinbase said that will be futile since they are yet to know why SEC disapproved it.

Coinbase can either suspend Lend indefinitely

Under the Lend program, which is open for waitlisting, Coinbase will enable eligible customers to earn interest on USDC. It said such an offering doesn’t qualify as a security or an investment contract or a note, as customers will only be lending their assets not “investing.” 

Per the report, Coinbase chose not to launch the Lend program straight away. However, they informed the regulator to hear their perspective about the service and have provided necessary information required by the SEC. “But today, all we know is that we can either keep Lend off the market indefinitely without knowing why or we can be sued.”