SEC Issues a Well Notice to Coinbase Over Its Staking Service

Crypto exchange Coinbase confirmed on Wednesday that it had been served with a Wells Notice by the Securities and Exchange Commission (SEC). The agency alleges that the exchange’s staking service is unregistered security.

It is expected that Coinbase will seek to challenge the SEC’s action in Court. A person familiar with the matter spoke to Global Wallets, saying that the exchange’s management is frustrated by the regulator’s sudden change of heart after allowing investors in the United States to participate in its staking service for several months.

Coinbase has had numerous talks with the SEC concerning regulatory matters since last July after the firm filed a petition with the agency. The exchange has been insisting that the SEC initiate a public rulemaking process in order to define which crypto assets it considers as securities.

Coinbase Submits a Letter to SEC

On Monday, Coinbase delivered a letter to the Commission asking for rulemaking clarity in regard to staking. Paul Grewal, the company’s chief legal officer who wrote the letter, stated that Coinbase was surprised to see Kraken disclose that it had agreed to pay a $30 million penalty fee to settle with the regulator over its staking service.

Grewal argued that the SEC hadn’t previously announced that staking services are securities and required companies to register such services with the agency.

Yesterday, Grewal said in a blog post that the Wells Notice didn’t provide much information for Coinbase to respond to.

In a Twitter thread, Coinbase Boss Brian Armstrong wondered why the SEC was coming for the company now despite allowing the exchange to go public in 2021, even after including over fifty references to staking in its S-1 form.

SEC Continues With Its Enforcement Actions

The SEC’s Wells Notice to Coinbase came hours after the agency had filed a lawsuit against Justin Sun, the Tron founder, along with some celebrities like Lindsay Lohan and Jake Paul, for various violations. For Sun, the SEC accuses him of manipulating the market and violating securities law, while the celebrities are being sued for promoting BitTorrent and Tronix tokens which, according to the agency, are unregistered securities.