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SEC threatens to sue Coinbase over crypto yield program it considers a security

"They refuse to tell us why they think it’s a security, and instead subpoena a bunch of records from us,” said Brian Armstrong after he revealed that the SEC threatened to sue Coinbase.

The United States Securities and Exchange Commission (SEC) has reportedly threatened to sue Coinbase over a crypto yield program it deems as a security.

Coinbase CEO Brian Armstrong tweeted on Sept. 8 that has been some “really sketchy behavior coming out of the SEC recently” before launching into a 21 post thread detailing the SEC’s dealings with the firm.

Armstrong explained that the crypto exchange approached the SEC earlier this year to brief the enforcement body over the up-and-coming Coinbase Lend program that intends to offer 4% annual yield returns on deposits of the USDC stablecoin.

According to the Coinbase CEO, the SEC responded by telling the firm that the lending program is a security without any explanation, and threatened to sue if the service was launched:

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In a blog post published today, Paul Grewal the Chief Legal Officer at Coinbase expressed his dismay at the SEC’s actions as he questioned the assertion the lending feature can be deemed as an “investment contract or a note.”

“Customers won’t be ‘investing’ in the program, but rather lending the USDC they hold on Coinbase’s platform in connection with their existing relationship. And although Lend customers will earn interest from their participation in the program, we have an obligation to pay this interest regardless of Coinbase’s broader business activities,” he said.

Grewal went on to explain that the only clarification the firm has been provided is that the lending program is currently being assessed under the Howey Test:

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SEC boss Gary Gensler has regularly urged crypto firms to work with the SEC so that they can operate under public frameworks and ensure their survival. Grewal said the SEC’s actions appear to contradict Gensler’s statements:

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