Coinbase Under Investigation?
Coinbase under investigation? CEO Brian Armstrong revealed the dispute in a series of tweets calling the SEC’s actions intimidating behind closed doors and saying many crypto companies are capable of offering programs such as allowing its customers to lend interest to other merchants. But let’s explain these disputes in more detail.
Coinbase’s lending platform would allow customers with a stable currency called USD Coin to earn interest on a loan offered to other traders. Stable currencies are crypto-assets that maintain a link with national currencies, such as USD, and facilitate the change from one crypto asset to another.
Coinbase plans to expand this program by including other stable cryptocurrencies through which users can borrow from other merchants, of course with interest. The SEC has indicated that the activity would be a type of investment that must be registered with the government in accordance with investor protection laws.
Several state regulators, including New Jersey, have accused other crypto-lending platforms, including one offered by BlockFi Inc., of violating securities laws.
Regulators have officially notified Coinbase that it intends to take civil action to implement the program, the company wrote in a blog post. Crypto companies have become increasingly frustrated with what they believe is the SEC’s zeal to regulate its industry.
Coinbase relating to its compliance program
Coinbase denies that its program is an investment contract that should be overseen by the SEC. Therefore, Mr. Armstrong wrote on Twitter that federal regulators will not explain their reasoning to Coinbase.
“They refuse to tell us why they think it’s a guarantee and instead quote a bunch of records from us (we comply), ask for testimony from our employees (comply), and then tell us they’ll give us Judgment if we proceed with the launch, without any explanation as to why “Mr. Armstrong wrote on Twitter.
Regulators “requested each person’s name and contact information” who signed up to use the program, Coinbase wrote on its blog. Coinbase has said it will not offer the loan program until October 2021at at the earliest. According to Coinbase, the SEC offered this answer, although it was not the one the company wanted.
Some assets show that investments may not be subject to SEC oversight if they are covered by another regulatory regime, said Rohan Gray, a professor at Willamette University Law College. Crypto lending programs do not appear to qualify for this exemption, he said, because they do not comply with other regulatory frameworks, such as banking regulations.
“The clarity that Coinbase wants is not whether it should continue or not,” Mr Gray said. “What they want is for the SEC to essentially show its hand in their terms so that they can begin the process of trying to circumvent the SEC or challenge the decision.
Richard Levin, a lawyer who advises cryptocurrency companies, said it is not clear that every lending program qualifies for SEC oversight. The disputes may provide some clarity, but the courts have historically shown respect for the lawmakers’ views on the law, he added.
“We are in a more mature market, where a number of players with substantial financial means may choose to sue and where a court may take a different position from what the SEC would expect,” said Mr. Levin, President of Fintech and Practice. Nelson Mullins Riley & Scarborough LLP.
The term DeFi encompasses a variety of projects that seek to automate traditional financial activities, such as trading or lending, using cryptocurrencies. There is currently about $115 billion in assets on DeFi exchanges, according to the website DappRadar.