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Coinbase CEO on its Wells notice: SEC is like soccer referees in a game of pickleball

Brian Armstrong made the interesting analogy when asked to explain the firm’s recent “Wells notice” in “NFL terms.“

Brian Armstrong, the co-founder and CEO of crypto exchange Coinbase, has compared the United States Securities and Exchange Commission (SEC) to “soccer refs” in a game of pickleball, criticizing U.S. regulators for not being able to “agree on the rules” of “this new game.”

The comments came after Armstrong revealed that his firm had been issued a Wells notice on March 22, which he said: “typically precedes an enforcement action.“

The Coinbase CEO has been critical of U.S. regulators’ seeming lack of clarity around crypto regulation. There has also been an ongoing debate on who should be the primary body regulating crypto.

Asked to explain the most recent development “in NFL terms,” Armstrong quipped:

“Imagine you’ve got both football and soccer refs on the field, but we’re actually playing pickleball (fastest growing new sport in America). The refs can’t really agree on the rules of this new game, and one of them decides to change a call they made back in April 2021.”

The reference to a “call they made back in April 2021” refers to the SEC’s approval of Coinbase’s application to go public. Armstrong argued that its filings “clearly explained” its asset listing process and “included 57 references to staking.”

In a separate tweet, Coinbase chief legal officer Paul Grewal claimed the SEC provided “no clear rule book” on crypto regulations and that “efforts to engage with the SEC are met with silence or enforcement actions.“

Both executives appear to welcome the chance to use the “legal process” to provide the crypto industry with regulatory clarity.

“We are proud to stand up for our customers and the industry in these moments,” said Armstrong.

“Going forward, the legal process will provide an open and public forum before an unbiased body where we will be able to make clear for all to see that the SEC simply has not been fair, reasonable, or even demonstrated a seriousness of purpose when it comes to its engagement on digital assets.”

While other firms like Kraken reached a settlement with the SEC that required it to stop offering staking services to U.S. customers, Armstrong has repeatedly asserted that Coinbase’s staking services are not securities and that the firm would be happy to defend this position in court if required.

Related: Cathie Wood’s ARK sells Coinbase stock for the first time in 2023

The crypto community has widely condemned the recent notice, with many agreeing that the SEC has reversed its earlier position regarding Coinbase.

Many have also thrown their support behind Coinbase, seeming to agree that Coinbase would be fighting on behalf of the entire U.S. crypto industry as an unclear regulatory environment drives activity offshore.

Magazine: Best and worst countries for crypto taxes — Plus crypto tax tips

‘Agent of an anti-crypto agenda’ — Community slams Gensler over Kraken crackdown

SEC’s recent charges against crypto exchange Kraken over its staking program have sent tremors through the crypto industry.

Members of the crypto community seem outraged over the recent charges laid against crypto exchange Kraken in relation to its staking-as-a-service program in the United States. 

On Feb. 9, the United States Securities Exchange Commission (SEC) announced it had settled charges with Kraken over “failing to register the offer and sale of their crypto asset staking-as-a-service program,” which it claims is qualified as securities under its purview.

Kraken agreed to settle the charges by paying $30 million in fines and to immediately cease offering staking services to U.S. retail investors, though they will continue to be offered offshore.

The move appears to have attracted the ire of not only the general crypto community but also of investors, politicians and industry executives.

Cinneamhain Ventures partner and Ethereum bull, Adam Cochran, called out SEC chief Gary Gensler, describing him as “an agent of an anti-crypto agenda” rather than a regulator, and questioning why the same standards weren’t applied to Sam Bankman-Fried and FTX:

In a Feb. 9 statement shared on Twitter, Kristin Smith, CEO of the Blockchain Association, argued that the situation at hand is a textbook example why Congress — not the SEC — should be working with industry players to forge appropriate legislation:

U.S. Congressman Tom Emmer — who has long been a critic of Gary Gensler — reiterated the importance of staking in the crypto ecosystem.

In a Feb. 9 Twitter post, the lawmaker explained that staking services will play an important role in “building the next generation of the internet” and argued that the “purgatory strategy” will hurt “everyday Americans the most,” as they may soon be forced to fetch such services offshore.

Meanwhile, Ryan Sean Adams, the founder of the Ethereum show Bankless, suggested to his 220,800 Twitter followers on Feb. 9 that the SEC could have taken other measures rather than charging Kraken out of the blue:

Other members of the community questioned how Kraken could possibly have registered with the securities regulator, as there was “no clear path” to approve crypto staking.

Others suggested it could impact Ethereum’s consensus layer, given Kraken is the fourth-largest validator on Ethereum, according to on-chain metrics platform Nansen.

Related: ‘Kraken Down’ — SEC commissioner rebukes own agency over recent action

However, not all were against the SEC’s decision. Prominent Bitcoin bull Michael Saylor — who has long considered ETH and other proof-of-stake cryptocurrencies to be securities — agreed with Gensler’s analysis that retail investors “lose control” of their tokens when they’re delegated to external staking service providers:

Meanwhile, attorney and chief policy officer of the Blockchain Association, Jake Chervinsky, noted that such “settlements are not law” and that Kraken’s decision to settle was likely an economic decision rather than a legal one:

The debate comes as the SEC’s charge towards enforcing action against staking service providers prompted Coinbase CEO Brian Armstrong to say that “regulation by enforcement” would be a “terrible path” for U.S. innovators, as they’ll be forced to push more of their services offshore.

SEC charges 11 individuals over $300M crypto ‘pyramid scheme’

SEC has filed a lawsuit in the U.S. District Court against the founders and promoters of Forsage, who allegedly fueled a $300 million “textbook pyramid and Ponzi scheme.”

The Securities and Exchange Commission (SEC) has charged 11 individuals for their alleged role in the creation of a “fraudulent crypto pyramid scheme” platform Forsage. 

The charges were laid in a United States District Court in Illinois on Monday, with the SEC alleging that the founders and promoters of the platform used the “fraudulent crypto pyramid and Ponzi scheme” to raise more than $300 million from “millions of retail investors worldwide.”

The SEC complaint states that Forsage was modeled such that investors would be financially rewarded by recruiting new investors to the platform in a “typical Ponzi structure,” which spanned multiple countries including the United States and Russia. 

According to the SEC, a Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. These schemes often solicit new investors by promising to invest funds in opportunities that generate high returns for little risk. 

In the court document, the SEC stated that:

“It [the Forsage platform] did not sell or purport to sell any actual, consumable product to bona fide retail customers during the relevant time period and had no apparent source of revenue other than funds received from investors. The primary way for investors to make money from Forsage was to recruit others into the scheme.”

According to the SEC, Forsage’s alleged Ponzi scheme works by firstly enabling new investors to set up a crypto-asset wallet and purchase “slots” from Forsage’s smart contracts.

Those slots would give them the right to earn compensation from others whom they recruited into the scheme, referred to as “downlines,” and also from the community of Forsage investors in the form of profit sharing, referred to as “spillovers.”

Carolyn Welshhans, acting chief of the SEC’s Crypto Assets and Cyber Unit, called Forsage a “fraudulent pyramid scheme launched on a massive scale and aggressively marketed to investors.”

She also added that decentralized technologies cannot act as an escape route for illegal conduct:

“Fraudsters cannot circumvent the federal securities laws by focusing their schemes on smart contracts and blockchains.”

In addition to the four founders, who include Vladimir Okhotnikov, Jane Doe aka Lola Ferrari, Mikhail Sergeev and Sergey Maslakov, the SEC’s complaint also included seven promoters, three of which were in a U.S.-based promotional group called the “Crypto Crusaders.”

All 11 individuals have been charged with violating “Unregistered Offers and Sales of Securities” under Section 5 A & C and “Fraud” under Section 17(a) (1 & 3) of the US Securities Act. The defendants have also been charged with “Fraud” under Section 10 B-C of the US Exchange Act.

These efforts enabled the Ponzi structure to capture the massive scale that it achieved from retail investors buying into the model over the last two years, said Welshhans.

Related: How to identify and avoid a crypto pump-and-dump scheme?

In September 2020, Forsage was subject to cease-and-desist orders from the Philippines SEC. In March 2021, the platform also received cease and desist orders from the Montana Commissioner of Securities and Insurance.

Forsage’s YouTube channel shows that its platform was promoted as little as ten days ago. The platform’s Twitter account also appears active.

Cointelegraph reached out to Forsage to provide a comment on the matter but did not receive an immediate response.