End of the Runway: SEC Hits Coinbase with Wells Notice

Coinbase Gets SEC Wells Notice Over Crypto Offerings

Coinbase Global Inc. said it received a notice from the SEC formally declaring the securities regulator’s plans to bring an enforcement action against the largest US crypto exchange, the latest development in a long-running dispute between the watchdog and the digital-asset company.

Securities and Exchange Commission Chair Gary Gensler has repeatedly said many of the tokens and products offered by crypto companies are securities and that the trading platforms need to register with his agency. Those warnings ramped up after the collapse of several prominent companies last year, including Sam Bankman-Fried’s FTX, left investors facing billions of dollars of losses.

In a filing Wednesday, Coinbase said the so-called Wells notice regards aspects of its exchange as well as the staking service Coinbase Earn and Coinbase Wallet.

SEC Charges Crypto Entrepreneur Justin Sun and his Companies for Fraud and Other Securities Law Violations

The Securities and Exchange Commission today announced charges against crypto asset entrepreneur Justin Sun and three of his wholly-owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), for the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT). The SEC also charged Sun and his companies with fraudulently manipulating the secondary market for TRX through extensive wash trading, which involves the simultaneous or near-simultaneous purchase and sale of a security to make it appear actively traded without an actual change in beneficial ownership, and for orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation.

The SEC simultaneously charged the following eight celebrities for illegally touting TRX and/or BTT without disclosing that they were compensated for doing so and the amount of their compensation.

--Lindsay Lohan

--Jake Paul

--DeAndre Cortez Way (Soulja Boy)

--Austin Mahone

--Michele Mason (Kendra Lust)

--Miles Parks McCollum (Lil Yachty)

--Shaffer Smith (Ne-Yo)

--Aliaune Thiam (Akon)

Bankers Bury ‘ESG’ in Pitch Books to Head Off Republican Attacks

Banks and financial firms are quietly recalibrating how they talk about ESG investing in the US, navigating around potential political fights in order to avoid losing lucrative business.

Eleven major banks and money managers told Bloomberg News that they’re adjusting the language they use in pitch books, marketing materials and investor reports when seeking to sell funds and take part in financial deals. In some cases this means avoiding using the ESG acronym and related terms in Republican-led states, while for blue states, they’re playing up their ESG credentials, according to representatives of the financial firms who asked not to be named discussing private information.

The different language doesn’t reflect a change in underlying services, just an acknowledgment that words need to be adjusted depending on who the client is, the people said….

We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead.Tl:dr: Today, the SEC gave Coinbase a “Wells notice” regarding an undefined portion of our listed digital assets, our staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet after a cursory investigation. We are prepared for this disappointing development. We are confident in the legality of our assets and services, and 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. Rest assured, Coinbase products and services continue to operate as usual – today’s news does not require any changes to our current products or services.

Beware the ‘sensible’ crypto crowd — they’re worse than the fanaticsWhat I am talking about when I use this oxymoron is the men in suits — and it is most commonly men, though there are women too — who will tell you that sure, the vast majority of cryptoland is a gigantic grift, but that their crypto coin is going to change the way we send money around the world, making the financial system fairer and more inclusive and democratic.

It’s the political leaders who insist that we must embrace this noxious industry in order to stay at the cutting edge of innovation. It’s the Wall Street types with money to lose who appear on CNBC to tell the less well-off that crypto is a safe place to put their money. And yes, it’s the crypto exchange bosses who don’t care about the Lambos and designer clothes; they just want to make a few billion dollars so they give it all away and make the world a better place.

SEC proposes sweeping new package of cybersecurity requirements for regulated market participants

On their face, the proposals would seem to impose substantial new costs across the industry, especially considering the nearly 1,200 total pages of new guidance and explanation. The SEC concluded otherwise, estimating, for example, that the average internal costs per Covered Entity for the new policy and procedure and annual review requirements of Rule 10 would be only $14,531.54 per Covered Entity and $29.1 million in total (in addition to external costs of $3,472 per Covered Entity and $6.9 million in total external costs). The SEC estimated that a compliance attorney and assistant general counsel would require a total of 31.67 hours—four working days—to comply with the rules. It is difficult to square these estimates with the expansive new requirements; one wonders whether a firm could even read the three proposals and respond to the SEC’s many requests for comment in that amount of time. The accuracy of the cost estimate may provide a basis to challenge the rules if they are adopted.

The proposal also would create new hindsight enforcement risk. The SEC frequently brings enforcement cases involving policy and procedure requirements, such policies and procedures to prevent the misuse of material, nonpublic information under Exchange Act Section 15(g) and Investment Advisers Act Section 204A. Cybersecurity-related enforcement actions have been on the rise in recent years, a trend that is sure to continue if the proposed suite of new requirements is adopted.

Bank Regulators’ Contagion Fears Are Misdirected Toward Crypto

The recent collapses of Silvergate, Silicon Valley Bank, and Signature Bank highlight the contagion risk between the cryptocurrency industry and traditional banking that regulators have warned about.

But in these instances, the contagion flowed in the opposite direction anticipated by regulators—from traditional finance to the crypto industry.

GOP Sen. Ted Cruz Proposes Ban on a CBDC

Sen. Ted Cruz (R-Texas) introduced a bill on Tuesday aimed at blocking the Federal Reserve from creating a consumer-based central bank digital currency, or CBDC.

“The federal government has no authority to unilaterally establish a central bank currency,” Cruz said in a press release. “This bill goes a long way in making sure big government doesn’t attempt to centralize or control cryptocurrency and instead, allows it to thrive in the United States.”

The bill was cosponsored by Sens. Mike Braun (R-Ind.) and Charles Grassley (R-Iowa).