Coinbase (NASDAQ: COIN) , one of the largest cryptocurrencies trading platforms has received a notice of possible enforcement action from the Securities and Exchange Commission (SEC) regarding the interest-earning product that the company will launch in the next few weeks.
The company received a Wells notice from the SEC last Wednesday that explained that the regulator will sue Coinbase over its product called Coinbase Lend, said the company in a blog post on Tuesday. Consequently, Coinbase shares plunged by 3.2%.
Coinbase’s chief legal officer, Paul Grewal argued in the post that Coinbase was caught off guard by the threat. CEO Brian Armstrong said in a series of tweets that when he traveled to Washington, D.C. in May, the SEC “refused” to meet with him.
That visit took place shortly after Coinbase became the first publicly traded crypto exchange and about a month after Gary Gensler had been confirmed as chairman of the SEC.
“We’re committed to following the law. Sometimes the law is unclear. So if the SEC wants to publish guidance, we are also happy to follow that,” Armstrong said in the tweets.
What is Coinbase Lend
Coinbase Lend which the company was planning to launch soon allows customers to earn a 4% annual percentage yield on the USD Coin. Coinbase lends the funds to verified borrowers. USD Coin which is a stablecoin is backed by the exchange platform and Coinbase guarantees its users that they can redeem it for $1. High-interest accounts have become popular among crypto users, with companies like BlockFi and Gemini similarly offering a high yield on stablecoin and other cryptocurrency balances.
Armstrong explained that Coinbase wanted to reach out to the Securities and Exchange Commission for a briefing before the launch but the regulators responded by saying the Lend feature is security. Additionally, when the firm asked the SEC to explain its view, the regulator responded with a set of demands with which Coinbase complied, according to Armstrong.
The product’s launch has been delayed until at least October.