Coinbase calls out SEC after threat to sue over cryptocurrency lending product

The crypto exchange accuses the regulator of "really sketchy behavior."

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Coinbase, one of the largest US cryptocurrency exchanges, went public in April.

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Coinbase slammed the US Securities and Exchange Commission late Tuesday after saying the cryptocurrency exchange had received a warning from the regulator over its upcoming Lend program. In a series of tweets, CEO Brian Armstrong accused the SEC of "really sketchy behavior" and "creating an unfair market." 

Coinbase disclosed in a blog post Tuesday that it had received a Wells notice from the SEC, signaling the regulator's intent to take the company to court. The crypto exchange had been engaging with the SEC about its Lend product for six months before receiving the notice last week, Chief Legal Officer Paul Grewal said in a company blog post. He added that the SEC refused to share its concerns or legal assessment of the Lend program. 

"All we know is that we can either keep Lend off the market indefinitely without knowing why or we can be sued," Grewal said. "A healthy regulatory relationship should never leave the industry in that kind of bind without explanation."

The Lend program plans to allow some customers to "earn interest on select assets on Coinbase, starting with 4% APY on USD Coin (USDC)," according to the company. Coinbase announced plans for Lend in June, allowing customers to pre-enroll in the program. The SEC apparently told Coinbase that it considers Lend to involve a security, while the company says it does not. 

US regulators have reportedly started to raise concerns about programs that allow people to lend cryptocurrencies in return for interest, saying they should comply with securities laws. In July, New Jersey ordered crypto platform BlockFi to stop offering interest-bearing accounts, Reuters reported. 

Coinbase plans to delay the launch of its Lend product until at least October.

A spokesperson for the SEC said it doesn't comment on the "existence or nonexistence of a possible investigation."