SEC Admitted Deviating from “Typical” Wells Notice Process: Coinbase’s Paul Grewal

Key Takeaways

• Coinbase’s Chief Legal Officer Paul Grewal accuses the SEC of not following its own procedures.
• The SEC admitted to deviating from standard practice in a separate case against Debt Box.
• This incident fuels ongoing criticism of the SEC’s approach to crypto regulation.

Coinbase’s Chief Legal Officer Paul Grewal says the US Securities and Exchange Commission (SEC) has not adhered to its own guidelines. His comments come after the regulator gave the exchange a Wells Notice.

This comes in the context of a lawsuit filed by the SEC against Coinbase last year. In it, the regulator accuses the exchage of functioning as an unregistered exchange, broker, and clearing agency.

Coinbase CLO Criticizes SEC for Deviating from Wells Notice Procedure

Grewal said :

“In a brief to avoid dismissal of its case against Debt Box with prejudice, SEC includes a remarkable admission that it did not follow its own typical Wells process when it refused to tell us what assets would be charged as securities: “The Wells process is designed to aid the charging decision for a specific potential defendant. The SEC staff typically provides a thorough explanation of the evidence it would use to prove potential charges against a particular person or entity.”

Grewal revealed that in an attempt to avoid dismissing its case against the crypto platform Debt Box, the regulator admitted to departing from its standard process by not specifying which assets it considered securities.

The SEC did not immediately respond to a request for comment.

The SEC’s legal filing confirmed that it typically provides a detailed explanation of evidence when outlining potential charges. However, according to Grewal , Coinbase received no such explanation regarding the assets in question.

The Commission has also filed a request for the court to dismiss Coinbase’s appeal against the lawsuit. This dates back to June 2023, when the regulator accused Coinbas engaging in unregistered securities transactions since 2019.

Power Abuse or Simply a Fraud?

In March, a federal district court judge in Utah sharply criticized the SEC . Robert Shelby called its actions a “gross abuse” of power during its case against Debt Box, where it was accused of defrauding investors out of over $49 million.

Judge Shelby said that the regulator’s case was compromised by “false statements and misrepresentations”. After his comments, the two SEC attorneys involved resigned.

The move comes as Gary Gensler and his team take more action against crypto companies. Meanwhile, parts of the industry are taking a stand against the regulator.

For instance, when trading app Robinhood received a Wells notice for alleged securities violations earlier this month, Rodrigo Silva-Herzog, special counsel at Cooley LLP, accused the SEC of conducting a “carpet bombing campaign” against crypto entities.

Similarly, Hayden Adams, the founder of Uniswap—which also recently received a SEC warning—criticized the agency for targeting “good actors” in the industry rather than establishing clear regulatory guidelines.