SUMMARY

• Coinbase challenges SEC's Wells notice, claiming enforcement action would be a major risk for the regulator
• The case hinges on the Howey test and whether it applies to Coinbase's services
• Litigation could harm the SEC's public reputation, warns the crypto exchange

Coinbase, the well-known crypto exchange, fired back at the SEC's Wells notice in a sizzling response last Thursday. The company stated that taking enforcement action against them could lead to some serious trouble for the SEC, and that it wouldn't stand a chance in court. Coinbase made it clear they don't mess around with securities trading and that the SEC's argument is based on flimsy comparisons to other businesses.

Paul Grewal, Coinbase's chief legal officer, expressed his confusion with CNBC, as the SEC had already reviewed the company's business aspects before going public. The SEC's March Wells notice accused Coinbase of offering and selling unregistered securities, jeopardizing several of their operations. If the SEC won the case, it could force Coinbase to shut down those units, but so far, they haven't approved any crypto-asset entity as a national securities exchange.

Coinbase is ready to rumble with the SEC in a case that could shape the future of the US crypto industry. The company pointed out its history of cooperation with the SEC, with no issues arising until recently. They also noted that the SEC could have denied them permission to go public in 2021, but didn't.

The main argument revolves around the Howey test, a Supreme Court case used to determine whether transactions constitute investment contracts. Coinbase asserts that the proposed charges are based on faulty and untested theories regarding investment contracts, spot markets, and custody services. They also claim that their retail staking services don't meet any of the Howey test requirements.

Despite the brewing conflict, Coinbase insists they never wanted to battle the SEC. They argue that litigation would only put the Commission's own actions on trial and damage the public trust they've built up over the years.
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