The SEC threatened Coinbase with a lawsuit
The U.S. Securities and Exchange Commission (SEC) warned bitcoin exchange Coinbase of legal action if it launched USD Coin Crypto Savings Accounts (USDC) at 4% per annum because of their treatment as "securities."
Coinbase announced Lend in June. The product offers higher interest rates than what traditional banks offer. The exchange offered a "peace of mind" guarantee as a substitute for the FDIC guarantee for such accounts.
According to platform lawyer Paul Grevel, Coinbase has been actively engaged with the SEC about the Lend product for the past six months. Last week, the regulator warned of legal action if cryptocurrency accounts were launched.
The top executive pointed out that such products have been on the market for years, some of which appeared in August. Coinbase decided to get regulatory approval and delay the launch.
A lawyer explained that interpreting Lend as a "security" is wrong. Coinbase customers will not "invest" in the program, but rather will act as lenders at the expense of USDCs placed on the platform. The exchange is committed to paying interest regardless of its operating success, guaranteeing that USDC will be converted into fiat upon customer request.
After reviewing the documents and interviewing employees, officials never explained why they viewed Lend as a "security." According to Grevel, the SEC made no argument and after threatening to sue if the savings accounts were triggered. The SEC only cited the Howey and Reves test as justification for its decision, he added.
Grevel urged the regulator for regulatory clarity and a dialogue in which the exchange remains open. He explained that Lend will be delayed until at least October, customers will be kept informed at every stage as events unfold.
They don't tell us why they think it's a security. Instead, they request a bunch of paperwork from us (we comply), take statements from our employees (we comply), and then tell us they will sue us if we proceed with the launch, with no explanation, complained Coinbase CEO Brian Armstrong
Armstrong said the SEC refused to meet, despite Coinbase gaining public status. Instead of clearly outlining a position and clear guidance for industry participants regarding such products, the Commission is using "intimidation behind closed doors" tactics. This is more in line with "territory grabbing" than regulation, he added.
Armstrong recalled Gensler's words about the need for transparency in the industry and called for a written clarification of his position on banning such products, if that is indeed the case. He is convinced that such an approach should apply to all industry participants.
By insisting on consumer protection and "fair competition," according to Coinbase's CEO, the Commission is doing the opposite by not allowing Coinbase to launch an existing product on the market.
Armstrong concluded by urging the SEC to change its approach and provide regulatory clarity. He said that litigation should be a last resort for the regulator.
Welcome to the party, Ripple CEO Brad Garlinghouse "congratulated" Armstrong
Recall that in December 2020, the SEC accused Ripple and its executives of unregistered sales of $1.3 billion in securities disguised as XRP tokens. The regulator later adjusted the lawsuit to focus on the actions of Brad Garlinghouse and Chris Larsen.
In September 2021, cryptolanding platform BlockFi reported that the New Jersey Securities Bureau postponed the effective date of the firm's ban on opening new BIA savings accounts to state residents from Sept. 2 to Sept. 30.
Regulators in Alabama, Texas and Vermont have also made similar claims against BlockFi.