Coinbase disclosed on Wednesday that the company has received a Wells Notice from the Securities and Exchange Commission—a document the agency uses to inform firms they are facing imminent legal action.
The company revealed it received the notice in a 8-K filing—a form used by public companies to disclose significant news to shareholders—and in a blog post. In the post, Coinbase said the SEC had issued the Wells Notice over “aspects of the Company’s exchange, our staking service Coinbase Earn, and Coinbase Wallet after a cursory investigation.”
The post added that staff had informed the company of potential securities laws violations but did not provide much specificity. Meanwhile, Coinbase said it does not intend to change how it operates in relation to the notice, while chief legal officer Paul Grewal suggested the company will go to court over the allegations if necessary.
“If needed, we welcome a legal process to provide the clarity we have been advocating for and to demonstrate that the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets. Until then, it’s business as usual,” said Grewal.
A person close to Coinbase, speaking on the condition of anonymity due to legal sensitivities, told Fortune the SEC’s decision to issue the Wells Notice was likely tied to its recent declaration that it was exploring expanding off-shore operations in response to U.S. regulatory pressure, and the company sensed the agency had acted “in retaliation.”
The person added that the Wells Notice also alleged Coinbase had listed digital assets that could be viewed as unlicensed securities, but did not specify what those assets might be.
In its blog post, Coinbase appeared to defend the integrity of its listing process, noting that it has a “rigorous asset review process” that rejected more than 90% of assets that apply to be listed on the platform, and that hundreds of assets have been rejected on grounds they may be securities.
The law over when digital assets constitute a security is currently deeply muddied as the SEC has suggested that any other token beside Bitcoin likely falls in that category, while the head of its sister agency, the Commodity and Futures Trading Commission has recently stated many tokens are actually commodities.
The securities issue is currently before a federal court in a closely-watched case involving the SEC suing the crypto firm Ripple over its sale of the XRP token. Both parties have sought a summary judgment in the case, and the New York judge in the case is expected to issue a ruling in the coming months—the judge could rule in favor of either party on the legal issue, or send the case to trial.
While the ruling in the Ripple case is likely to inform any litigation between Coinbase and the SEC, any court fight involving Coinbase is likely to involve a broader range of issues and assets.
This story will be updated with more details shortly.
