Key Insights
Wells Notice is a document served to those whom the SEC accuses of having violated any security laws in the USA.
It is served to clarify the situation before the SEC officially charges them.
It was created to resolve any misunderstanding between the accused and the SEC.
Under Gary Gensler, several Wells Notices have been issued under the pretext of "selling unregistered securities" despite the agency being inconclusive on what a security was.
Recently, the US Securities and Exchange Commission (SEC) has beamed its searchlight on several crypto stakeholders in the crypto industry.
The modus operandi has been similar: crypto firms allegedly sell 'unregistered securities,' the SEC investigates them, and it ends with a Wells notice.
If a regulatory body like the SEC receives complaints about a crypto firm's dealings, they launch investigations.
At the end of the investigation, if they discover gross infractions, they send a letter explaining the broad nature of the firm's violation.
Furthermore, the letter will contain the nature of the enforcement proceedings that they would initiate against the recipient. This letter is called the 'Wells Notice.'
When it is served, it means that such an entity is under the SEC's radar and is likely indicted after the investigation.
A Wells Notice is issued only by the SEC and has been named after
Significantly, the recipient of a Wells Notice has the opportunity to clarify the issues raised against them or await civil action from the regulatory body.
It is intriguing that a letter of such severity is not always discussed or issued publicly. It mostly stays between the regulator and the affected firm.
The SEC had been clamping down on crypto firms for allegedly selling 'unregistered securities' in the last two years of Gary Gensler's term as the Chairman of SEC.
To the SEC, anything that trades and does not have an effective registration statement on file with them is considered unregistered. By the extension of this rule, cryptocurrencies have been termed as unregistered securities.
One major mistake from the SEC's side was the complete ignorance to the Howey Test, which, as per the Supreme Court of the USA was a necessary test for terming any asset as a security.
Industry players have long been asking for regulatory clarity in crypto to weed out illegal regulatory activities like the SEC had been doing under Gary Gensler.
The SEC's attempt to serve Wells Notices provided a regulatory clampdown without any regulations. Even the FIT 21 bill had not received president's approval in Gensler's tenure. The notices were served on the basis of presumed securities violation without any conclusive evidence that any cryptocurrency was a security.
Even in SEC's own investigations it found Ethereum and Bitcoin were not securities, rather they were totally decentralized.
However, due to the risk of regulatory heat, several investment firms had stopped investing in any crypto business, leading to a investment crisis in the sector. Larger companies had enough resources to arrange for legal solutions and fighting lengthy court battles like MetaMask, Ripple Labs and Rocket Pools, however, small and micro businesses suffered the wrath of regulation.
Crypto regulation has seen a very investor-friendly period under Trump, where past prejudices inside the SEC against crypto businesses were ended. Among them, the largest decision was to reverse all the anti-crypto decisions under Biden.
Further, the SEC went a step ahead, calling the memecoins as collectibles and not securities because they lacked any utility.
The largest development was the proposal of using XRP Ledger as the base of the US Financial System which would save around $7.5 billion annually. The proceeds of this fund would be used to buy Bitcoins for the US National Digital Assets Stockpile.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.