Understanding Wells Notices: SEC Investigations in the Crypto World



By CapitalThink



November 25, 2023

NOVEMBER 25, 2023

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A Wells Notice is a letter sent by the U.S. Securities and Exchange Commission (SEC) to firms or individuals to notify them that the SEC is preparing to bring an enforcement action against them. Receiving a Wells Notice means you are under investigation by the SEC for potentially violating securities laws.

In the world of cryptocurrency and blockchain technology, Wells Notices have become increasingly common in recent years as the SEC ramps up its oversight and enforcement in this area. Some of the biggest names in crypto have received Wells Notices, signaling the SEC's intent to crack down on unregistered securities offerings, fraud, and manipulation in crypto markets.

Understanding Wells Notices

A Wells Notice gets its name from John Wells, who chaired an SEC advisory committee in 1972. The committee recommended that defense attorneys be allowed to submit a written statement to the SEC to respond to charges before any litigation moves forward.

The SEC then incorporated this recommendation into its rules of practice. Today, Wells Notices provide the recipient the opportunity to explain their position and convince the SEC why an enforcement action is not necessary, before any official charges or penalties.

The Notice lays out the SEC’s case and the specific securities statutes and rules it believes the recipient has violated. Some of the most common accusations include:

- Selling unregistered securities
- Misrepresentation or omission of key facts
- Manipulating prices of securities
- Insider trading
- Stealing funds or assets
- Failure to register as a broker-dealer

Within the Wells Notice period, the recipient can submit a Wells Submission, which is basically their defense explaining why the charges shouldn’t be brought or why the case should be resolved favorably for them. An attorney usually carefully drafts the Wells Submission to try to persuade the SEC not to go forward with an enforcement action. 

If the SEC decides to move forward anyway, it will then issue formal charges against the recipient by filing a complaint in federal court or through its own internal administrative proceedings.

The SEC issues Wells Notices to all types of financial companies and individuals, but most of the recent ones in crypto have targeted issuers of initial coin offerings (ICOs).

Recent Crypto Wells Notices

Regulators around the world have struggled with how exactly to oversee and govern cryptocurrencies and crypto companies. Many agencies view cryptocurrency assets sold through ICOs as unregistered securities that should fall under securities laws.

The SEC argues that many crypto token issuers have illegally sold unregistered securities and committed fraud. Here are some of the most notable Wells Notices and cases involving crypto companies and executives:

Ripple Labs & Executives

In 2020, Ripple Labs and its top two executives were slapped with a Wells Notice regarding ongoing sales of its XRP cryptocurrency. The SEC alleged that Ripple raised more than $1.3 billion over the years by selling the XRP token, which the SEC views as an unregistered security under law.


In February 2022, crypto lending platform BlockFi revealed it had received a Wells Notice related to its crypto interest-bearing accounts. The SEC asserts that the product qualifies as a security and that BlockFi failed to register it or meet regulatory requirements.

BlockFi raised concerns that designating the product a security “would adversely impact not only BlockFi’s product, but arguably all financial products generating interest.” The company has indicated its intent to challenge the SEC’s allegations and demonstrate compliance.


In 2019, ICO listing site Coinschedule received a Wells Notice saying the SEC would bring an enforcement action against it for promoting the sale of unregistered ICOs. According to the SEC, Coinschedule’s activities violated federal broker-dealer registration requirements as well as securities offering and anti-touting provisions.

Coinschedule shut down its site following the Wells Notice and ceased business operations rather than mount a challenge.


You might not think of collectible virtual cats as securities, but the SEC does. In 2018, it sent a Wells Notice to blockchain gaming company Dapper Labs over alleged unregistered security violations related to its CryptoKitties game.

Each CryptoKitty is a non-fungible token (NFT) representing unique digital cats that players can buy, sell, collect, and breed. The SEC argued that the tokens were cryptocurrencies requiring regulation and securities registration, while Dapper Labs asserted they were simply collectibles.

Dapper Labs continues selling CryptoKitties and other NFT games but excludes U.S. customers from transactions the SEC may still consider securities offerings.

Many More Expected

As the crypto space expands, expect the number of Wells Notices from the SEC to keep rising. Crypto exchanges, miners, financial firms all utilizing crypto assets as part of business operations remain at risk.

The SEC has limited resources to oversee such a large industry, meaning Wells Notices often act more as a warning and deterrent to the wider marketplace. The highest profile cases tend to target the biggest crypto companies issuing tokens the SEC views unambiguously as securities.

Smaller players often avoid direct lawsuits or enforcement so long as they discontinue the activities condemned through major Wells Notices and investigations. However, the precedents set through cases like Ripple Labs will likely impact almost all crypto businesses either directly or indirectly.

Why Wells Notices Matter to the Crypto Industry

Wells Notices are often the first major signal to the wider crypto industry that certain practices will not fly under the SEC’s radar. Below are some of the key reasons why they end up mattering so much:

They Set Precedents

As regulatory guidance still remains murky regarding how securities laws apply to digital assets and DeFi protocols, major cases stemming from Wells Notices set influential precedents in court. If Ripple ends up losing its ongoing litigation, it will be very difficult for similar projects to argue with a straight face that their tokens don’t constitute securities.

The outcomes of these high-profile cases therefore often de facto shape industry definitions of security tokens vs. non-security tokens. Smaller players modeling their cryptocurrency projects based on the examples set by top companies should heed any precedents making certain tokens vulnerable to securities designation.

They Shape the Regulatory Climate

Wells Notices usually signal when regulatory tolerance for previous common industry practices has come to an end. For example, after the initial Coinschedule Wells Notice in 2018, the vast majority of companies stopped directly promoting token sales for fear of also facing enforcement actions.

These warning signs indicate regulator policy shifts to the industry before any official guidance releases. SEC officials often use Wells Notices in the crypto sphere intentionally to draw public attention and deter other players still engaged in the soon-to-be banned behaviors called out.

They Influence Business Operations

Firms wanting to reduce regulatory risk typically change policies and remove product offerings that triggered other companies receiving Wells Notices. For example, after BlockFi’s run-in with the SEC over its interest accounts this year, rivals like Nexo and Celsius chose to discontinue their own similar yield offerings for U.S. customers.

Such self-policing results from firms inferring what activities regulators will crack down on next based on the violations alleged through recent Wells Notices against peers. No CEO wants their company becoming the next example made by regulators through high-cost lawsuits or settlements.

They Affect Market Sentiment

Wells Notice announcements also impact investor confidence, market prices, and broader public crypto sentiment. Both Ripple Labs and BlockFi saw their native token values drop substantially after revealing they received the SEC warnings.

Negative headlines around Wells Notices contribute to bearish market moves, while the legal uncertainty can dissuade risk-averse investors. The stigma slows mainstream institutional and retail adoption more broadly if reasonable observers assume tighter regulations are coming.

They Force Industry Adaptation

At the same time, Wells Notices usually don’t spell the end for innovative blockchain projects. Instead, they often force productive business model and technological adaptations.

For example, many DeFi platforms have blocked the IP addresses of U.S. citizens after receiving Wells Notices and now focus primarily on non-U.S. markets with clearer regulations. Several NFT marketplaces have instituted strict know your customer (KYC) and anti-money laundering (AML) controls after being targeted for previous lax practices. Other players shift from utility tokens to stablecoin models with pricing tied directly to USD rather than speculation.


While alarming for those who receive them, Wells Notices provide the crypto industry early warning signs regarding changing regulatory priorities. They should prompt companies not (yet) targeted to reevaluate their own token models and compliance through a more conservative legal lens.

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