The United States Securities and Exchange Commission (SEC) has filed a lawsuit against New York-based crypto exchange Coinbase for offering unregistered securities.
The SEC lawsuit alleges that Coinbase has never registered as a broker, national securities exchange or clearing agency, evading the disclosure scheme for securities markets. The SEC alleges that several tokens offered by the crypto exchange, including Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), The Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), Flow (FLOW), Internet Computer (ICP), Near (NEAR), Voyager Token (VGX), Dash (DASH) and Nexo (NEXO) qualify as securities.
Today we charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency and for failing to register the offer and sale of its crypto asset staking-as-a-service program.https://t.co/XPG2gDkxtV pic.twitter.com/hCdVMw8B2v— U.S. Securities and Exchange Commission (@SECGov) June 6, 2023
The lawsuit further alleges that Coinbase has operated as an unregistered security broker since 2019, almost two years before its initial public offering in April 2021.
The SEC claims that Coinbase’s staking program includes five stackable crypto assets, making the staking program an investment contract and, therefore, a security. Coinbase was already fighting a staking battle with the SEC, claiming its staking products do not qualify as securities despite Kraken previously settling with the SEC and winding down its staking services in the United States.
Addressing the latest Coinbase lawsuit, SEC Chair Gary Gensler said the crypto exchange allegedly deprived its customers of critical protections that prevent fraud and manipulation, and avoided proper disclosure and safeguards against conflicts of interest. Gurbir Grewal, director of the SEC’s Division of Enforcement, 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”
Coinbase’s share price dropped 15% in pre-trading after the SEC announced its lawsuit on June 6.
The SEC’s lawsuit against Coinbase comes just a day after the securities regulator sued Binance for violating securities law and comingling customers’ funds. While Binance was charged with 13 counts of violations under various securities laws, the allegations against Coinbase have puzzled many in the crypto industry, primarily because Coinbase is a publicly listed company.
Binance CEO Changpeng Zhao reacted to the Coinbase lawsuit by taking a dig at the SEC.
If you have to pick a fight with everyone, maybe you are the one at fault. ♂️— CZ Binance (@cz_binance) June 6, 2023
Paul Grewal, chief legal officer at Coinbase, told Cointelegraph that the SEC’s reliance on an enforcement-only approach without clear rules for the digital asset industry is hurting America’s economic competitiveness, adding:
“The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation. In the meantime, we’ll continue to operate our business as usual”
Many in the crypto community questioned how Coinbase was allowed to go public in 2021 if it operated as an unregistered security broker. One member of Crypto Twitter, The Wolf, said the SEC suing Coinbase could cut some slack for Binance.