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Coinbase says the SEC threatened legal action if the exchange goes ahead with plans to launch a lending program

photo U.S. Securities and Exchange Commission Chair Gary Gensler

the staff of the Ridgewood blog

Washington DC, the US Securities and Exchange Commission intends to take legal action against Coinbase if the exchange follows through with plans to launch Lend, a program that would allow users to earn interest on lended assets, the company revealed late Tuesday.

U.S. Securities and Exchange Commission Chair Gary Gensler put the nascent industry on notice of how far he’ll go to bring it to heel. In threatening to sue Coinbase Global if the exchange lets customers earn interest on digital tokens, the regulator sent a warning to other firms offering similar products or even just thinking about it.

Previously Gensler acknowledged growing investor interest in the digital asset space, but warned that without greater regulatory oversight, the industry will not advance.

“While I’m technology-neutral, I am anything but public policy-neutral, and as new technologies come along, we need to be sure they’re achieving core public policy goals,” he said. “I’d like to note that financial innovations throughout history don’t thrive outside the public policy framework — they just don’t last that long unless we bring them inside.”

When thinking about oversight around the cryptocurrency space, Gensler said, consumer protection is at the forefront, especially if tokens are considered securities, which under the current framework, they are.

“I think that many of these crypto tokens have entrepreneurs behind them and the investing public is looking and hoping for profit based upon the efforts of that entrepreneurial group or the sponsors and the like. Under our US laws, reviewed by our Supreme Court, that often makes those investment contracts under our laws a security, because that’s how Congress wrote our securities laws in the 1930s,” said Gensler.

Under US securities laws, securities must maintain high investor disclosure in order to protect against fraud, Gensler said.

“The SEC,” said James Cox, a professor at Duke University School of Law, “is being aggressive for the first time in a long time.”

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