Coinbase Likely To Face Lawsuit from the US SEC over Crypto Yield Program
US-based crypto exchange, Coinbase, is on the verge of getting slammed with a lawsuit by US regulator, Securities and Exchange Commission. According to reports, the SEC had issued a warning to the exchange over its crypto yield program due for launch later this month. In light of the threats from the regulator, Coinbase has postponed the launch of the program to October pending the resolution of the issues surrounding it.
Coinbase’s crypto yield program will see its users make deposits in stablecoin USDC, which then entitles them to 4% in yield returns on an annual basis. However, the US SEC claims the product is a security and Coinbase should have consulted it while setting up the program.
Coinbase CEO Decries the US SEC Decision
Coinbase CEO, Brian Armstrong has lamented the regulator’s decision saying it failed to issue clear reasons on why the crypto yield program should be discontinued. Using his official Twitter account, Armstrong went into details on what had transpired between Coinbase and the US SEC. He revealed that the regulator had summoned Coinbase over the program earlier this year maintaining that its (Coinbase) Lend product is a security without further explanation and dangled the threat of a lawsuit against Coinbase if it attempted to launch the service.
CEO Armstrong continued that the regulator had requested documents relating to the products, demanded testimonies from Coinbase’s employees, all of which it complied with. In his argument against the SEC’s order, Armstrong referenced other crypto businesses that already provide the same crypto yield or Lend services- BlockFi and Celsius.
With Armstrong’s revelation, this has put both firms under the SEC’s spotlight. There are fears that the regulator will begin looking into their businesses. BlockFi is the subject of investigations in different states across the US due to its high yield products. Armstrong has demanded that the US SEC provide clarity on regulations instead of a vague interpretation.
‘Customers Won’t Be Investing in the Program,’ Says Coinbase CLO
CLO at Coinbase, Paul Grewal has made his comments known on the issue. In a blog post, Grewal questioned the argument that the exchange’s crypto yield program is an ‘investment note or contract.’ He clarified details of the program in his post- “customer won’t be ‘investing’ in the program.” Grewal further explained that the product requires users to lend their USDC deposits and earn interest on them. Coinbase is under an obligation to pay the 4% interest to every participant, irrespective of other businesses it operates.
According to the Coinbase CLO, the US SEC cannot protect investors- which it claims to be its focus- with intimidation tactics. A Twitter user, possibly a Coinbase user, said the US SEC has been unable to, in its active efforts, distinguish between its intention to protect retail investors in America and hurting them, which seems to be the case.
Meanwhile, the US SEC has claimed that it is passing Coinbase’s product through a test known as the Howey and Reves test which comprises a host of age-long cases decided by the Supreme Court. It is not known how long that would take. This news is believed to have affected the crypto market, as another Twitter user noted.
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