Coinbase shares tumble after revealing SEC plans to sue interest-generating product

Coinbase shares tumble after revealing SEC plans to sue interest-generating product

People look at the logo of Coinbase Global Inc., America’s largest cryptocurrency exchange, displayed on the Nasdaq Marketsite Jumbotron in Times Square on April 14, 2021 in New York City, United States.

Shannon Stapleton | Reuters

Coinbase has been made aware of potential enforcement action by the Securities and Exchange Commission regarding its interest-generating product, which the company plans to launch in the coming weeks.

Last Wednesday, the cryptocurrency exchange and services company received a notice from Wells from the SEC that the regulator intended to sue Coinbase for a product called Coinbase Lend, the company revealed in an article by blog Tuesday night. The SEC did not immediately return a call for comment.

Coinbase shares fell 4% on Wednesday morning.

General Counsel Paul Grewal said in the post that the company has escaped danger given its efforts to engage with the regulatory agency over the past six months. CEO Brian Armstrong claimed in a series of tweets that the SEC “refused” to meet with him during his trip to Washington, DC in May.

The visit comes nearly a month after Coinbase became the first publicly traded crypto exchange and Gary Gensler was confirmed as chairman of the SEC.

“We are committed to respecting the law. Sometimes the law is vague. So if the SEC wants to issue guidance, we are also happy to follow it ”, Armstrong said.

The product in question is touted as allowing users to earn an annual percentage return of 4% on a so-called stablecoin (USD coin), allowing Coinbase to lend these funds to verified borrowers. Coinbase supports USD Coin and guarantees that it can always be exchanged for $ 1. High interest accounts have become popular among crypto users, with companies such as BlockFi and Gemini also offering high returns on stablecoin balances and other cryptocurrencies.

Armstrong said when the company initially contacted the SEC for a pre-launch briefing, the regulator responded that the loan function is a security. According to Armstrong, when the company asked the SEC for help in understanding its point of view, the agency responded to a number of requests, which Coinbase complied with.

The product launch has been postponed until at least October.

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