Here’s why the U.S. SEC plans to sue Coinbase

Shortly after Coinbase Global Inc (NASDAQ: COIN) expressed plans of launching a new programme that will let users lend crypto assets to earn interest, the U.S. SEC is set to sue the crypto exchange if such a programme is implemented, Coinbase disclosed this morning.

Shares of the $54 billion company that has a price to earnings ratio of 32.22 are down about 3.5% today. Last month, Mizuho’s Dolev slashed his price target on Coinbase.

Coinbase’s “Lend” product delayed until October

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In his blog post on Wednesday, Coinbase’s chief legal officer, Paul Grewal, confirmed that the company received a Wells Notice from the Securities and Exchange Commission. As a result, the “lend” product, he added, will not be launched until at least next month.

Globally, similar programmes that let users lend cryptocurrencies to earn interest are already live. In some countries, including the United States, however, regulators are not in favour of such products unless they abide by the existing securities laws.  

Earlier this year in July, New Jersey ordered BlockFi Inc to discontinue “interest accounts” that collected $14.7 billion from investors.

SEC’s primary concern regarding the “Lend” product

Responding to the SEC’s notice, Grewal said in his blog post that the regulator argues that Coinbase’s to-be-launched “Lend” product involves a security. The crypto company, however, disagrees.

“Despite Coinbase keeping Lend off the market and providing detailed information, the SEC still won’t explain why they see a problem. They are refusing to offer any opinion in writing to the industry on what should be allowed and why, and instead are engaging in intimidation tactics behind closed doors. Whatever their theory is here, it feels like a reach/land grab vs other regulators,” Grewal wrote.

The U.S. SEC is yet to make an official comment on the news.