SEC plans to sue Coinbase for loaning product but has not provided an explanation

  • Coinbase has received a notice from Wells that the SEC is suing the exchange for its interest product.
  • The SEC has not clarified its intention to take legal action against the Nasdaq-listed company.
  • The launch of the Lend program would most likely be delayed until October.

Coinbase has just revealed that the United States Securities & Exchange Commission (SEC) is taking legal action against the company’s loan program. A notice from Wells has been sent to the crypto exchange stating that the agency will sue the company.

Coinbase urges SEC to provide clarity

An announcement made by Coinbase said that despite the proactive exchange with the SEC over the past six months, the regulator is suing the company without revealing to the company the reasons for the lawsuit.

The SEC targets Coinbase’s loan program, which allows users of the exchange to earn interest on various crypto assets on the platform, starting with a 4% annual percentage return on the USD Coin (USDC) .

The exchange said the company could have launched the product before contacting the SEC, but the company decided not to. Coinbase further pointed out that other cryptocurrency companies have had loan products on the market for several years. Still, the Nasdaq-listed company believes in “open and substantial dialogue” with regulators.

Coinbase believes that the loan program is not considered a security because it is not a contract or an investment note. Customers who lend their USDC hold on the exchange, and the company would be obligated to pay the interest.

While Coinbase has had meetings with the SEC, the company added that it hasn’t received much response from the agency. The regulator suggested that they considered the loan to involve security, but did not mention the details behind the reasoning. The main crypto exchange then decided to continue discussions with the financial watchdog.

Coinbase CEO Brian Armstrong suggested the agency “is engaging in intimidation tactics behind closed doors.” He further cited the statement by SEC Chairman Gary Gensler that the regulator needs to provide direction and clarity. Armstrong urged the watchdog to publish his position in writing and apply it consistently across the industry.

Additionally, Armstrong said its shutdown could harm consumers more than protect them by preventing Coinbase from launching the same products that already exist in the crypto industry.

In June, Coinbase announced the Lend program to the public but did not disclose a launch date in light of the regulatory environment. The SEC then opened a formal investigation, requesting the exchange of documents and written responses which were then turned over to the agency.

The loan has yet to go public, although the SEC has yet to explain the problem behind the reasoning that it could involve an investment contract. The agency declined to share his point of view, but only referred to the Howey and Reves cases from more than three decades ago.

Coinbase further added that it will not launch Lend until October of this year and will keep its customers informed.

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