Coinbase, a popular cryptocurrency trading platform, saw its shares plummet 15% on Thursday, March 23, following a warning from the US Securities and Exchange Commission (SEC) that it could be dealing with securities charges, according to a report by AP.
In an SEC filing on Wednesday, Coinbase revealed that it had received a Wells Notice from the agency, indicating that it may have violated laws protecting investors.
LONDON, ENGLAND - NOVEMBER 09: In this photo illustration, a flipped version of the Coinbase logo is reflected in a mobile phone screen on November 09, 2021 in London, England. The cryptocurrency exchange platform is to release its quarterly earnings today.
Staking Under Coinbase Earn
Staking, which is a service provided by the business under the name "Coinbase Earn," is one of the actions that the SEC is targeting.
Staking works similarly to earning interest on savings accounts that allows customers to lock up some of their assets in exchange for payment later. These assets are used by platforms like Coinbase to back up other blockchain transactions.
The SEC contends that in order to provide these services, Coinbase, and other platforms must register as securities platforms and solely with the Division of Corporate Finance of the SEC.
The SEC warning is a clear hint from SEC Chairman Gary Gensler that he is attempting to establish the agency's oversight of cryptocurrency firms when they veer into areas that are typically connected with banking.
Rival cryptocurrency exchange Kraken decided to settle for $30 million and stop providing staking as a service in February.
With the possibility of the regulation's abolition of services like staking, JP Morgan analysts believe that regulatory risk is considerable for Coinbase.
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Coinbase's Response
In a tweet, Coinbase CEO Brian Armstrong criticized the SEC, claiming that the legal process would offer an open and public forum where the SEC would be required to show that it was serious about dealing with digital assets.
In a blog post, Paul Grewal, chief legal officer at Coinbase, referred to the SEC case as a "disappointing development." Grewal further informed customers that the products and services offered by Coinbase are still available.
Earlier this year, Coinbase already had a run-in with the law. State officials discovered significant flaws in the cryptocurrency trading platform's systems for spotting potential criminal activity in January, leading the San Francisco-based company to agree to pay a $50 million fine to the state of New York and will invest another $50 million in its compliance program.
In addition, Coinbase revealed in January that it would eliminate 950 jobs, or nearly 20% of its workforce, in what would be its second round of layoffs in under a year.
Coinbase said in June that it will be cutting 1,100 positions in total or about 18% of its global workforce.
Since its inception in 2012, Coinbase has had no headquarters. When it went public in April 2021, it listed its stock immediately rather than following the customary procedure of using underwriters, as per AP.
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