Global Courant
The US Securities and Exchange Commission (SEC) has sued Coinbase, accusing the largest US cryptocurrency platform of operating illegally because it has not registered as an exchange.
The lawsuit, filed on Tuesday, is the SEC’s second in two days against a major crypto exchange following the case against Binance, the world’s largest cryptocurrency exchange, and its founder, Changpeng Zhao.
Both civil suits are part of SEC Chairman Gary Gensler’s push to assert jurisdiction over crypto markets, which he called the “wild west” of investing, and protect investors while bolstering their confidence in capital markets.
“The crypto markets undermine that confidence, and I would say this: it undermines our overall capital markets,” Gensler told CNBC.
Crypto companies, including Coinbase, have said SEC rules are unclear and the regulator is going too far in overseeing their industry.
Paul Grewal, Coinbase’s general counsel, said in a statement that the company will continue to operate as normal and has a “demonstrated commitment to compliance.”
Ten US states led by California are also accusing Coinbase of securities law violations related to the staking rewards program.
Shares of Coinbase’s parent company, Coinbase Global Inc, fell $6.42, or 10.9 percent, to $52.29 in afternoon trading, having previously fallen as much as 20.9 percent.
Coinbase clients have withdrawn more than $57 million within hours of the SEC filing, said data firm Nansen.
Thirteen crypto assets
In its complaint filed in Manhattan federal court, the SEC said Coinbase has made billions of dollars since at least 2019 by acting as an intermediary in cryptocurrency transactions while circumventing disclosure requirements designed to protect investors.
The SEC said Coinbase traded at least 13 crypto assets that are securities that should have been registered, including tokens such as Solana, Cardano and Polygon.
Founded in 2012, Coinbase served more than 108 million customers, according to a recent tally, and ended March with $130 billion in customer crypto assets and funds on its balance sheet. Transactions generated 75 percent of $3.15 billion in net sales last year.
In the staking rewards program, which has about 3.5 million customers, Coinbase bundles crypto assets and uses them to support activities on the blockchain network in exchange for “rewards” it offers customers after taking a commission for itself . The SEC has said that this too is an unregistered security and violates securities laws.
The states targeting this program are Alabama, California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin. New Jersey fined Coinbase $5 million for selling unregistered securities.
‘I can’t ignore the rules’
Tuesday’s SEC lawsuit seeks civil fines, the recovery of ill-gotten gains and coercive action. The SEC had warned Coinbase in March that charges could be forthcoming.
“You just can’t ignore the rules because you don’t like them or because you prefer others,” SEC enforcement chief Gurbir Grewal said in a statement.
Gensler’s crypto crackdown has prompted the industry to boost compliance, shelve products, and expand beyond the country.
Kristin Smith, CEO of the Blockchain Association trade group, dismissed Gensler’s efforts to oversee the industry.
“We are confident that in due course the courts will prove Chairman Gensler wrong,” she said.
In the Binance case, the SEC accused that exchange of inflating trading volumes, diverting client funds, inappropriately mixing assets, failing to deter wealthy US clients from its platform and misleading clients about its controls. .
Binance promised to vigorously defend the lawsuit, saying the case reflected the SEC’s “misguided and deliberate refusal” to provide clarity and guidance to the crypto industry.
Coinbase’s friction with Gensler dates back to 2021, when the SEC threatened to sue if Coinbase allowed users to earn interest by lending digital assets. The company scrapped the idea.
The case is SEC v Coinbase Inc et al, U.S. District Court, Southern District of New York, No. 23-04738.
