The SEC Files a Lawsuit Against Coinbase. Details
- The SEC believes Coinbase operates as an unregistered exchange, risking investors.
- The lawsuit comes a day after the SEC accused Binance of shady practices.
- Coinbase has expressed its willingness to cooperate with regulators.
The US Securities and Exchange Commission on Tuesday filed a lawsuit against Coinbase, the biggest US-based cryptocurrency exchange, alleging that the firm had violated securities regulations by failing to register as a broker.
This surprising development comes a day after the regulator filed a similar suit against Binance, another crypto exchange. The SEC accused Binance of misusing customer funds and misleading investors and regulators in the United States about its business practices.
In its filing on Tuesday, the SEC outlined how Coinbase’s executives had shown that they were aware of the legal requirements for marketing and selling digital assets in the United States but eventually disregarded those requirements.
The SEC’s filing said,
Coinbase has elevated its interest in increasing its profits over investors’ interests, and over compliance with the law and the regulatory framework that governs the securities markets and was created to protect investors and the U.S. capital markets.
The SEC lawsuit claimed that Coinbase failed to register as a broker or national securities exchange and had avoided the disclosure scheme for securities markets. The regulator also alleged that a number of the tokens sold by the cryptocurrency exchange, including Solana (SOL), Cardano (ADA), Polygon (MATIC), Axie Infinity (AXS), Chiliz (CHZ), Nexo (NEXO), etc., qualify as securities.
SEC Claims that Coinbase Staking Qualifies as Securities
The SEC argued that Coinbase’s staking program consists of five stacking crypto assets, making it an investment contract and a security. Interestingly, Coinbase has been engaged in a dispute with the SEC over its staking services, which it says are not securities.
The lawsuit, which the regulator filed in a federal court in Manhattan, alleged that Coinbase generated billions by allowing the purchase of cryptocurrency assets as an unlicensed exchange but neglected to provide investors with meaningful protections. Responding to today’s filing, SEC Chair Gary Gensler claimed Coinbase deprived its clients of vital precautions that guard against exploitation and fraud.
Director of the SEC’s Division of Enforcement, Gurbir Grewal, said,
As alleged in our complaint, Coinbase was fully aware of the applicability of the federal securities laws to its business activities but deliberately refused to follow them.
Tuesday’s lawsuit reinforces the SEC’s long-held belief that most crypto products are equivalent to stocks, bonds, and other securities and must abide by US rules. This demands that companies providing trading services or selling cryptocurrencies register with the regulator.
Responding to the SEC’s claims, Coinbase’s chief legal officer, Paul Grewal, said in a statement that “the S.E.C.’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness.”
Grewal added that “the solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation.” The lawsuit against Coinbase comes amidst an ongoing battle in the crypto space to change the perception of digital assets. Coinbase has expressed its willingness to cooperate.
The SEC’s moves against two of the largest crypto firms are part of a larger initiative to put an end to what U.S. officials perceive to be the current state of lawlessness in the sector. The S.E.C. has attempted to modify the crypto industry through these and other lawsuits by treating digital asset exchanges like conventional financial entities, such as securities dealers.
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