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SEC threatens to sue Coinbase over crypto products, shares drop

Coinbase Global Inc has been issued a Wells notice by the US Securities and Exchange Commission (SEC) for certain products offered by the crypto exchange, thereby increasing pressure on the largely unregulated sector.

Following this announcement on Wednesday, Coinbase’s shares dropped by almost 13% to $67.33 in extended trading. The SEC’s potential enforcement actions are related to aspects of Coinbase’s spot market, as well as its Wallet, Prime, and Earn products.

The Earn product and other staking services have come under increased scrutiny for not being registered, especially after the FTX implosion last year. Staking involves cryptocurrency holders volunteering to validate transactions on the blockchain and often offers high yields to customers. The SEC has been ramping up efforts to regulate the crypto industry.

Kraken paid $30 million in penalties and ceased its US cryptocurrency staking service last month to settle SEC charges related to program registration. Meanwhile, Justin Sun, a Chinese crypto entrepreneur, and eight celebrities, including Lindsay Lohan, were charged with fraud and illegally promoting his crypto assets earlier in the day.

Despite the Wells notice, Coinbase confirmed its services were running normally, and it does not necessarily imply a violation of the law or charges will be filed.

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