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- The SEC said it will sue Coinbase if it goes ahead with its plan to launch a program allowing users to earn interest by lending digital assets
- However, Coinbase argues its ‘Lend’ product is not an investment contract or note, and therefore not a security
- Coinbase said it will now delay the launch of its ‘Lend’ product until at least October
- The situation offers a glimpse into the rising tensions between the crypto industry and regulators
- In July, crypto platform BlockFi was ordered to stop offering interest-bearing accounts that have raised US$14.7 billion (A$20 billion) from investors
The US Securities and Exchange Commission (SEC) said it will sue Coinbase Global Inc. if it goes ahead with its plan to launch a program allowing users to earn interest by lending digital assets.
The regulator told Coinbase last week it intends to legally charge the cryptocurrency exchange, the company’s chief legal officer Paul Grewal said in a statement on Tuesday, adding that the launch of Coinbase’s ‘Lend’ product will be delayed until at least October.
In a long Twitter post, Coinbase CEO Brian Armstrong took aim at the regulator’s handling of the company’s plans and said it had denied him a meeting. Both Armstrong and Grewal said Coinbase disputes the SEC’s determination, arguing ‘Lend’ is not an investment contract or note, and therefore not a security.
Armstrong’s remarks offer a glimpse into the rising tensions between the crypto industry and regulators, which have been turning up their scrutiny of an industry that has largely existed in a regulatory grey area.
Crypto advocates have hoped that Gary Gensler, who was appointed SEC chair in April, would bring clear and broad rules to the industry, but so far have been disappointed by the SEC’s more hands-off approach.
Still, Gensler is seeking more authority for the regulator to oversee a sector he described last month as a “Wild West” riddled with fraud and investor risk.
Programs that allow owners of cryptocurrencies to lend them in return for interest are becoming more common around the world, but some regulators, particularly in the United States, have started to raise concerns, arguing that such products should comply with existing securities laws.
In July, the US state of New Jersey ordered cryptocurrency platform BlockFi Inc. to stop offering interest-bearing accounts that have raised US$14.7 billion (A$20 billion) from investors.
“If we end up in court we may finally get the regulatory clarity the SEC refuses to provide,” Armstrong said on Twitter. “But regulation by litigation should be the last resort for the SEC, not the first.”
