Coinbase Faces SEC Lawsuit Over Cryptocurrency Lending Program

The Securities and Exchange Commission has threatened to sue cryptocurrency exchange platform Coinbase, according to the company.

A post on Coinbase's blog says the SEC has issued the company with a Wells notice—a message of intent to sue in court.

The blog post, written by Coinbase's chief legal officer Paul Grewal, states that the warning was issued over the platform's proposed Lend program, which would allow cryptocurrency owners to lend them in return for interest.

According to Reuters, some U.S. states have raised concerns about such programs, arguing that they should comply with existing securities laws.

It added that New Jersey had issued an order in July, telling cryptocurrency platform BlockFi to stop offering interest-bearing accounts that had raised $14.7 billion from investors.

Coinbase said it had contacted the SEC over Lend and the company believed it did not fall under the securities laws.

In a tweet linking to the blog post, Coinbase said: "After months of trying to engage with the @SECGov on our planned Coinbase Lend product, we recently received notice that it intends to pursue legal action against us.

"We believe dialogue is at the heart of good regulation, even if the SEC may not."

After months of trying to engage with the @SECGov on our planned Coinbase Lend product, we recently received notice that it intends to pursue legal action against us. We believe dialogue is at the heart of good regulation, even if the SEC may not. https://t.co/OumvyTPQdj

— Coinbase (@coinbase) September 8, 2021

Grewal's blog post said the company had been in contact with the SEC and that it had decided to keep Lend off the market as a result of the legal threat.

He added: "Despite Coinbase keeping Lend off the market and providing detailed information, the SEC still won't explain why they see a problem.

"Rather they have now told us that if we launch Lend they intend to sue. Yet again, we asked if the SEC would share their reasoning with us and yet again they refused."

Grewal confirmed that Lend would not be launched until "at least October."

Newsweek has contacted the SEC and Coinbase for comment.

The Lend row is not the only issue making headlines in the cryptocurrency community this week. On Tuesday, El Salvador became the first country in the world to make bitcoin legal tender.

Within hours, however, El Salvador's bitcoin transaction app Chivo had to be disconnected in order to "increase the capacity" of its servers, according to President Nayib Bukele.

He said the servers would be down until the capacity issue had been properly corrected.

Following an initial surge in price ahead of El Salvador's law coming into effect on Tuesday, bitcoin crashed in price just hours later.

Coinbase app
The Coinbase logo on a phone screen. The crypto exchange platform is delaying the launch of its Lend program. Chris Delmas/AFP / Getty