Coinbase stock drops after SEC Wells notice, a possible prelude to 'enforcement action'

American crypto giant Coinbase received a Wells notice today from the Securities and Exchange Commission. In the wake of Coinbase's filing regarding the Wells notice, shares of the company are off sharply in after-hours trading.

Per a Coinbase SEC filing regarding the matter, the company writes that the government agency's staff has "advised the Company that it made a 'preliminary determination' to recommend that the SEC file an enforcement action against the Company alleging violations of the federal securities law."

The SEC also took legal action Wednesday against Justin Sun, the founder of Tron, for possible securities violations.

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In response to the news, Coinbase's CEO Brian Armstrong struck a confident posture, tweeting that his company is "right on the law, confident in the facts, and welcome the opportunity for Coinbase (and by extension the broader crypto community) to get before a court."

In a separate tweet that came as part of the same thread, Armstrong cited his company's SEC review during its IPO process, and the fact that its S-1 filing included "57 references to staking," a process by which cryptocurrency owners can lock a portion of their digital assets, usually for some sort of return. The SEC has taken action against other crypto exchanges, including Kraken, which paid a $30 million fine and ended its "staking-as-a-service" offering, in the words of the SEC.

At the time, SEC language appeared to indicate that staking through a third-party service can run afoul of securities law. The Coinbase Wells notice, and the company's comments directly following, indicate that ensuing events could lead to more regulatory clarity on when staking becomes an activity that falls under regular securities law, and when it is allowed without additional legal oversight.

Crypto regulation around the world is a hot topic due to the amount of capital flowing through the decentralized economic landscape, the need for customer protection, and the simple fact that being a somewhat new technology, blockchain-based assets and activity thereof is still nesting inside of existing government rules regarding investing.

As of the time of writing, after shedding around 8.2% of its worth during regular trading, shares of Coinbase were off another 13.8% in after-hours trading.