“Regulation by litigation should be the last resort for the SEC, not the first,” Coinbase CEO Brian Armstrong says.
The U.S. Securities and Exchange Commission is threatening to sue Coinbase over its plans to launch a lending program.
Paul Grewal, the exchange’s chief legal officer, said the company has been given a Wells notice that indicates the regulator is planning to launch legal action.
However, Grewal claimed the company was in the dark about why the SEC wanted to sue.
Coinbase’s Lend service would enable users to earn interest on their crypto by lending it to others. The 4% annual percentage yield offered on USDC, a stablecoin backed by the U.S. dollar, would be substantially more than the interest rates offered by traditional banks.
Grewal said Coinbase has been “proactively engaging” with the SEC for six months — and said that, while the exchange could have launched the product without consulting the regulator, it wanted to engage in “open and substantive dialogue.”
Next Steps Revealed
Grewal revealed that a Coinbase employee spent a full day testifying about Lend in August — and that the SEC had requested information about those who had signed up the product’s waiting list. He stressed that Coinbase has refused to hand these personal details over, adding:
“Despite Coinbase keeping Lend off the market and providing detailed information, the SEC still won’t explain why they see a problem. Rather they have now told us that if we launch Lend they intend to sue. Yet again, we asked if the SEC would share their reasoning with us, and yet again they refused.”
Grewal confirmed that Lend will now not be launched until the end of October at the earliest, adding:
“The SEC has repeatedly asked our industry to ‘talk to us, come in.’ We did that here. But today all we know is that we can either keep Lend off the market indefinitely without knowing why or we can be sued. A healthy regulatory relationship should never leave the industry in that kind of bind without explanation. Dialogue is at the heart of good regulation.”
Coinbase CEO Brian Armstrong has described the SEC’s behavior as “sketchy” — and argued that a number of crypto companies have offered versions of this service for years.
Calling for clarity, he warned:
“Regulation by litigation should be the last resort for the SEC, not the first.”
