Coinbase Pushes Back Against Potential SEC Legal Action

America's largest crypto exchange claims the Securities and Exchange Commission (SEC) is pressuring it to overhaul its entire customer-facing operation.

Coinbase Global Inc. (COIN) pushed back against the regulator Thursday, making public its response to a Wells Notice the company received late last month. The Wells Notice signaled that the SEC could take legal action against Coinbase for violating securities law.

The SEC argues Coinbase's tokens and other products are securities that should be registered. Coinbase disagrees, claiming none of its current products are securities.

"A Wells Notice—at this stage, when there's not a clear rulebook—is not constructive and it's not good for America," CEO Brian Armstrong said in a video. "We are prepared to defend that position in court, but it doesn't have to come to that."

Coinbase claims the SEC hasn't uncovered new information about the company, and said any concerns should have been brought up when the company filed its public offering process.

"Coinbase has been talking to the SEC for many years now. We have repeatedly asked the SEC for its own views on how securities laws might apply to Coinbase and our industry," said Paul Grewal, Chief Legal Officer of Coinbase in the video, "And to be candid, we have mostly gotten silence in response."

The SEC could sue Coinbase on the basis of the Wells Notice, and the company said while it's prepared to defend itself, a lawsuit may not be in the regulator's best interest.

"Coinbase has never wanted to litigate with the Commission. The Commission should not want to litigate either," Coinbase said. "Litigation will put the Commission’s own actions on trial, erode public trust cultivated over decades, undermine incentives for market participants to engage with the Commission in good faith, and present significant risks to broad aspects of the Commission’s enforcement program."

The SEC has recently come under fire for its strategy of regulation by enforcement as it has increased its scrutiny of firms in the space. Some companies, such as Bittrex, have chosen to shutter their U.S. operations on account of regulatory uncertainty. Coinbase's Armstrong said the company could consider shifting operations abroad in a few years if there is no clarity on crypto rules.

A Wells Notice is just one of many actions that the SEC is taking in its efforts to regulate the crypto community. Crypto companies, for their part, maintain that they do not work in securities.

Earlier in the day, SEC Chair Gary Gensler put out a video likening these claims to a person who gets in trouble for not leashing their dog and tries to get out of trouble by claiming the dog doesn't need to be leashed because it's actually a goldfish.

"Many crypto platforms are just pretending that these investment contracts that they offer are more like goldfish," Gensler said. "The lack of compliance by these crypto platforms means you don't have basic investor protections."