Shares of Coinbase, the popular cryptocurrency exchange, dropped by as much as 20% in early trading on Thursday after the U.S. Securities and Exchange Commission (SEC) informed the company that it may be violating securities laws. In a filing with the SEC, Coinbase said that the potential enforcement action “would relate to aspects of the company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet.” The SEC issued Coinbase a Wells notice on Wednesday, which is a notification that the agency plans to take future enforcement action against a business.
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Possible violation of securities laws
While Wells notices don’t always result in enforcement actions, they are usually a bad sign for the company that receives them. Coinbase has until March 29 to advise the SEC whether it plans to challenge the agency’s findings. Before the market opened on Thursday, Oppenheimer analyst Owen Lau downgraded Coinbase’s shares to “perform” from “outperform” following the SEC’s notice. Lau also cited Tuesday’s Economic Report of the President, which was critical of the crypto industry.
SEC’s ongoing battle against unregistered securities
The SEC has been investigating crypto companies for selling unregistered securities in recent years, and Chairman Gary Gensler has been vocal about his views on the matter. On the same day that the SEC issued the Wells notice to Coinbase, the agency also sued Justin Sun, the founder of Tron, for selling unregistered securities and other charges.
Following the SEC’s announcement, Coinbase’s stock pared some of its losses, but the incident highlights the ongoing regulatory uncertainty surrounding cryptocurrencies and their associated markets.
