Coinbase Threatened With SEC Lawsuit Over Lending Product

The Securities and Exchange Commission has threatened to sue cryptocurrency exchange Coinbase if it launched its upcoming Lend program, CEO Brian Armstrong tweeted late Tuesday.

The allegations come at a time when regulatory scrutiny is growing in the crypto industry, putting companies and investors on edge. Armstrong said the SEC told Coinbase it considers Lend a security without providing an explanation as to why it does or why it plans to sue. Lend, which Coinbase had planned to release in the next few weeks, according to Armstrong, allows users to earn 4% yield by lending their crypto to Coinbase. Armstrong also said that other crypto companies have been able to offer similar products without an issue.

“If we end up in court we may finally get the regulatory clarity the SEC refuses to provide,” Armstrong tweeted. “But regulation by litigation should be the last resort for the SEC, not the first.”

Coinbase Chief Legal Officer Paul Grewal said in a blog post Tuesday that Coinbase had been served with a Wells notice, which notifies a company that the regulator intends to sue it. Both Grewal and Armstrong also said that the SEC requested company records and employee testimony, which Coinbase provided.

Coinbase’s stock dropped on Wednesday morning, hitting a low of $254, a 6% drop from the day before. The SEC did not respond to a request for comment.