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SEC sends Wells notice to Coinbase, alleges violations related to Lend program

The staff of the U.S. Securities and Exchange Commission on Sept. 1 sent a Wells notice to Coinbase Inc., stating that it has advised the Coinbase Global Inc. subsidiary that it made a preliminary determination to suggest that the SEC file an enforcement action against the company over alleged violations of the Securities Act of 1933.

The alleged violations are related to Coinbase's planned Lend program, which is currently open to eligible users for pre-enrollment. Users who opt to pre-enroll will be able to earn interest on select assets on Coinbase, starting with a 4% annual percentage yield on USD Coin, per the company's website.

The SEC staff's recommended action may involve a civil injunctive action and may seek other remedies, according to an 8-K filing.

In a Sept. 7 blog post on Coinbase's website, Chief Legal Officer Paul Grewal said the company was surprised at the SEC's threat to sue without disclosing the reason.

The company shared details about Lend with the SEC, and the regulator said it considers Lend "to involve a security, but wouldn't say why or how they'd reached that conclusion," Grewal said.

"In June, we announced our Lend program publicly and opened a waitlist but did not set a public launch date," the executive said. "But once again, we got no explanation from the SEC. Instead, they opened a formal investigation."

The SEC did not respond to a request for comment.