The SEC issues a Wells Notice when it wants to bring an enforcement action for alleged violations of securities laws. While a Wells Notice is not a formal charge or lawsuit, it can lead to one.
The SEC’s Well’s Notice “does not provide a lot of information for us to respond to. The SEC staff told us they have identified potential violations of securities law, but little more. We asked the SEC specifically to identify which assets on our platforms they believe may be securities, and they declined to do so,” Coinbase Chief Legal Officer Paul Grewal stated in a blog post.
Grewal wrote that the Wells Notice followed after Coinbase discussed a potential resolution with the SEC that would have included registering a portion of its business with the SEC, an option that Coinbase was interested in.
In his post, Grewal goes into significant detail about how Coinbase has attempted to engage with the SEC. “Specifically, the SEC asked us to provide our views on what a registration path for Coinbase could look like, because there is no existing way for a crypto exchange to register. We developed and proposed two different registration models. We spent millions of dollars on legal support to build these proposals and repeatedly asked for the SEC’s feedback. We got none.”
“We also reiterated that we stand by our listings process – we don’t list securities today – and repeatedly invited the SEC to raise any questions about any asset at all on our platform. They raised none.” Over nine months, Coinbase attempted to engage with the SEC more than 30 times, Grewal said.
More Guidance, Less Enforcement
The crux of Grewal’s post is that there needs to be more guidance and less SEC enforcement. “Although we don’t take this development lightly, we are very confident in the way we run our business – the same business we presented to the SEC in order for us to become a public company in 2021,” Grewal said.
“We continue to think rulemaking and legislation are better tools for defining the law for our industry than enforcement actions. But if necessary, we welcome the opportunity for Coinbase and the broader crypto community to get clarity in court,” Grewal added.
He also stressed, “Coinbase does not list securities or offer products to our customers that are securities. Coinbase has a rigorous process to analyze and review each digital asset before making it available on our exchange — a process that we shared in detail with the SEC as part of our public listing. This process includes an analysis of whether the asset could be considered to be a security, and also considers regulatory compliance information-security aspects of the asset.”
“Coinbase Wallet is a technology, not an exchange or broker or centralized platform,” Grewal stressed. “This misunderstanding of crypto products, assets and services is another example of the need for comprehensive crypto regulation in the U.S. that understands the technology.”
Grewal took the SEC to task with its enforcement threats that effect the industry as a whole. “Tell us the rules, and we will follow them. Give us an actual path to register, and we will register the parts of our business that need registering. In the meantime, the United States cannot afford for regulators to continue to threaten the good actors in the crypto industry for doing the same legal and compliant things they’ve always done. This unfair approach will only drive innovation, jobs, and the entire industry overseas.”
Grewal concluded, “At our core, we are the very same company that we were on April 14, 2021 when we became a public company at the end of the lengthy process with the SEC itself. We remain confident in the legality of our assets and services, and if needed, we welcome a legal process to provide the clarity we have been advocating for and to demonstrate that the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.