Crypto Exchange Coinbase Shares Tumble 16% After SEC Enforcement Notice

Coinbase's (COIN) stock slumped as much as 20% in early trading Thursday before paring some of the losses, after the crypto exchange disclosed that the U.S. Securities and Exchange Commission said the company may be violating securities laws.

On Wednesday, the SEC issued Coinbase a Wells notice, which informs businesses that it is planning future enforcement action against them. Coinbase said in a filing with the SEC that it believes any action "would relate to aspects of the company’s spot market, staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet."

Prior to the market open, Coinbase's shares were downgraded by Oppenheimer analyst Owen Lau to perform from outperform, following the SEC's Wells notice. Lau also noted Tuesday's Economic Report of the President, which was sharply critical of the crypto industry.

Wells notices don't always lead to enforcement actions. Coinbase has until March 29 to advise the SEC whether it intends to rebut the agency's findings.

Allegations of selling unregistered securities levied at crypto companies by the SEC have been commonplace in recent years, with Chairman Gary Gensler regularly voicing that opinion.

The Wells notice to Coinbase came on the same day the SEC sued Tron founder Justin Sun for the sale of unregistered, securities among other charges.

Read more: SEC Chair Gensler Says Crypto Exchanges May Not Be 'Qualified Custodians'