(Bloomberg) -- Coinbase Global Inc. said it received a notice from the SEC formally declaring the securities regulator’s plans to bring an enforcement action against the largest US crypto exchange, the latest development in a long-running dispute between the watchdog and the digital-asset company. The stock slumped as much as 14% in premarket trading on Thursday. 

Securities and Exchange Commission Chair Gary Gensler has repeatedly said many of the tokens and products offered by crypto companies are securities and that the trading platforms need to register with his agency. Those warnings ramped up after the collapse of several prominent companies last year, including Sam Bankman-Fried’s FTX, left investors facing billions of dollars of losses. In a separate action Wednesday, the SEC sued crypto mogul Justin Sun for allegedly violating securities rules.

In a filing Wednesday, Coinbase said the so-called Wells notice regards aspects of its exchange including an undefined segment of its listed digital assets as well as the staking service Coinbase Earn and Coinbase Wallet. A Wells notice comes at the end of an investigation and companies are given time to rebut the agency’s allegations. They often, but don’t always, lead to enforcement actions — either lawsuits or settlements and fines. At the same time, not every potential issue identified in the notice needs to be part of an eventual action.

Coinbase fell as low as $66.11 in premarket trading, and traded down 11% at $68.89 at 8:36 a.m. London time. 

Coinbase said its products and services will continue to operate as usual for now. “We are prepared for this disappointing outcome and confident in the legality of our assets and services,” Paul Grewal, chief legal officer of Coinbase, said in a statement. “If needed, we welcome a legal process to provide the clarity we have been advocating for and to demonstrate that the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets.”   

The crypto industry has been rattled by the uptick in SEC enforcement actions since the beginning of the year, including a settlement with Coinbase’s rival Kraken and a Wells notice to Paxos Trust Co. alleging that the Binance USD stablecoin it issues is an unregistered security.  

For its part, Coinbase has maintained that the tokens listed on its exchange aren’t securities and that it has a thorough vetting process. Grewal has also argued that the company’s staking product is very different than the one offered by Kraken, which was the focus of the recent SEC settlement. Coinbase CEO Brian Armstrong said the company is willing to fight the SEC in court if a resolution can’t be reached.  

Kraken agreed to discontinue its program in the US without admitting or denying the SEC’s allegations. 

Coinbase shares slumped 12% in post-market trading in New York. Shares of the company have rebounded this year as Bitcoin climbed to more than $28,000, though the stock is still down more than 70% from its peak in November 2021.

This isn’t the first time Coinbase has received a Wells notice. The SEC warned the company in 2021 that it considered the company’s proposed “Lend” product, which would have allowed users to earn interest by lending out their crypto holdings, to be a security. The exchange later canceled the launch.

Coinbase executives have expressed frustration with the SEC’s approach, saying they’ve made good faith attempts to work with the regulator and that it’s not clear how to apply the agency’s rules to digital-asset trading platforms. Those frustrations grew after the SEC identified several tokens listed on the exchange as securities as part of an insider trading case involving a former employee. Shortly after, Bloomberg reported that while Coinbase wasn’t sued as part of that case, the agency was separately investigating the firm over its token listings. 

Representatives from Coinbase have met with the SEC more than 60 times over the last nine months to try to resolve the issues with the regulator, but those talks haven’t been fruitful, according to a person familiar with the matter who asked to remain anonymous discussing nonpublic information. 

The company also filed a petition for rulemaking with the agency last year, which it followed up with a comment on the need for more clarity around staking services. 

(Updates with share reaction in first, fourth paragraphs.)

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