US SEC threatens to sue Coinbase over some crypto products

The US Securities and Exchange Commission (SEC) has threatened to sue Coinbase Global Inc (COIN.O) over some of the crypto exchange’s products, turning up the heat on the largely unregulated sector.

Shares of Coinbase dropped nearly 13 per cent to $67.33 in extended trading after the company said on Wednesday that the regulator had issued it a Wells notice – a formal declaration that SEC staff intend to recommend an enforcement action.

The potential enforcement actions would be tied to aspects of Coinbase’s spot market as well as its Earn, Prime and Wallet products, the company said.

The SEC has been ratcheting up efforts to crack down on the crypto industry since the implosion of FTX last year, and staking services such as Coinbase’s Earn are under increased scrutiny for not being registered.

Staking is a process in which cryptocurrency holders volunteer to take part in validating transactions on the blockchain. These products often offer customers eye-popping yields.

Last month, Kraken agreed to shut down its US cryptocurrency staking service and pay $30 million in penalties to settle SEC charges that it failed to register the program.

Earlier in the day, the SEC charged Chinese cryptocurrency entrepreneur Justin Sun with fraud, and accused eight celebrities including actress Lindsay Lohan with illegally promoting his crypto assets.

Coinbase said its services continued to operate as usual after the notice was issued.

A Wells notice does not always result in charges or signal that the recipient has violated any law.