The crypto community has been reacting to news that the U.S. Securities and Exchange Commission’s Division of Enforcement sent a Wells Notice to Coinbase on Wednesday (March 22).
According to Thomson Reuters’ Practical Law website, here is what a Wells Notice means:
“A notice enforcement attorneys of financial industry regulators, including the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), and Commodity Futures Trading Commission (CFTC), send to an individual or entity at the conclusion of an investigation informing them:
- That the regulator’s enforcement department intends to recommend that the regulator file an enforcement action or proceeding against them.
- Of the potential violations of the laws or the regulator’s rules underlying the recommendation.
- That they may submit arguments or evidence to the regulator regarding the recommendation.
The Wells Notice gets its name from John Wells, who chaired the SEC advisory committee that first instituted the practice of issuing these notices. Although providing a Wells notice is discretionary, these regulators will do so in nearly every case, absent exceptional circumstances.“
In this case, the notice reportedly pertains to an unspecified portion of Coinbase’s listed digital assets, as well as its staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet.
Coinbase’s response to the Wells Notice was posted on their blog on March 22, stating that they are “confident in the legality of our assets and services” and that they “welcome a legal process to provide the clarity we have been advocating for.” The company emphasized that its products and services will continue to operate as usual and that the news does not require any changes to its current offerings.
Crypto industry leaders have taken to Twitter to express their thoughts on the matter.
David Marcus, Co-Founder and CEO of Bitcoin startup Lightspark, took to Twitter to praise Coinbase for playing by the rules and engaging with regulators. However, he noted that companies that operate fraudulently are often treated better than those that play by the rules. Marcus also criticized the SEC for its regulatory approach, suggesting that the agency’s incentive system may be flawed.
Jake Chervinsky, Chief Policy Officer at Blockchain Association, expressed disappointment with the SEC’s decision, noting that Coinbase has worked hard to seek regulatory clarity from the agency. He added that the SEC is often criticized for regulating by enforcement.
Veteran crypto investor Adam Cochran expressed his support for Coinbase if the company chooses to fight the SEC’s Wells Notice. Cochran stated that he would move all his purchases and trading to Coinbase and delegate to their staking nodes if the company goes to bat for the industry. Cochran also urged the crypto community to pressure congressional representatives to bring down pressure on the SEC for their continued attacks on American businesses.
Caitlin Long, Founder and CEO of Custodia Bank, expressed concerns about the Biden Administration’s stance on crypto. She stated that it seems the administration wants all crypto out of the U.S. Long also questioned the SEC’s actions, saying that if any of the agency’s actions against Coinbase predate the company’s IPO, then the SEC has overstepped its remit of investor protection.