The Securities and Exchange Commission has threatened to sue Coinbase if it goes ahead with plans to launch a new product that allows users to earn interest by lending crypto assets — with the company’s CEO accusing the regulator of “really sketchy behavior.”
The crypto exchange said Tuesday night that it received a Wells notice from the SEC last week saying that the regulator intends to sue Coinbase over the planned launch of its Coinbase Lend product.
The SEC sends out Wells notices after it’s completed an investigation and found regulatory infractions. Companies that have been served have 30 days to respond.
Coinbase was “surprised” by the SEC’s letter, the company’s chief legal officer Paul Grewal said in a blog post Tuesday night.
“Coinbase has been proactively engaging with the SEC about Lend for nearly six months,” Grewal wrote in the post, adding that “the SEC still won’t explain why they see a problem.”
However, Coinbase will now delay its plans to launch the Lend product until at least October, Grewal said.
Meanwhile, Coinbase co-founder and CEO Brian Armstrong blasted the regulatory scrutiny as “some really sketchy behavior coming out of the SEC.”
The SEC has subpoenaed the company for documents and received testimony from employees, Armstrong added in a series of tweets.
He alleged that the SEC is “engaging in intimidation tactics behind closed doors” and called for clearer regulatory guidance and for the SEC to enforce regulations equally across the industry.
“In May of this year I traveled to DC to meet with every regulator and branch of government I could,” Armstrong said. “The SEC was the only regulator that refused to meet with me, saying ‘we’re not meeting with any crypto companies’. This was right after we became the first crypto company to go public in the U.S.”
Shares of Coinbase fell almost three percent in pre-market trading on Wednesday.
The proposed product in question would let users earn a 4 percent annual yield on USD Coin, a so-called stablecoin that Coinbase guarantees can always be redeemed for $1, by allowing users to lend those assets out.
Similar programs that allow owners of cryptocurrencies to lend those assets out in return for interest have become increasingly popular globally.
But some regulators, including in the US, have expressed concern about the programs and said they should be regulated like securities.
Armstrong said on Twitter that Coinbase reached out to the SEC for a briefing ahead of the launch of its Lend product, and the regulator responded by saying the lend feature is a security.
“Ok – seems strange, how can lending be a security? So we ask the SEC to help us understand and share their view. We always make an effort to work proactively with regulators, and keep an open mind,” Armstrong said.
“They refuse to tell us why they think it’s a security, and instead subpoena a bunch of records from us (we comply), demand testimony from our employees (we comply), and then tell us they will be suing us if we proceed to launch, with zero explanation as to why,” he added.
Representatives for the SEC did not immediately return The Post’s request for comment.