SEC sues Coinbase for breaking US securities rules
The United States Securities and Exchange Commission has filed a lawsuit against New York-based crypto exchange Coinbase for offering unregistered securities.
The SEC lawsuit alleged that Coinbase has never registered as a broker, national securities exchange or clearing agency, evading the disclosure scheme for securities markets. SEC alleged that several tokens offered by the crypto exchange including Solana (SOL), Cardano (ADA), Polygon (MATIC) Filecoin (FIL), Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), FLOW, ICP, NEAR, VGX, DASH, and 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 alleged that Coinbase has been operating as an unregistered security broker since 2019, almost two year before its initial public offering (IPO) in April 2021.
The lawsuit alleged 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 the staking battle with the SEC and had claimed its staking products do not qualify as a security, despite Kraken settling with the SEC and winding down its staking services in the U.S.
SEC chief Gary Gensler while addressing the latest Coinbase lawsuit said that 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.
, “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,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
Coinbase share price dropped by 15% in pre-trading after SEC announced its lawsuit on June 6.
The SEC lawsuit against Coinbase comes just a day after the securities regulator sued Binance for violating securities law and comingling customer’s 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 also took to Twitter to react to the Coinbase lawsuit and took 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
Many in the crypto community questioned how Coinbase was allowed to go public in 2021 when it has been operating as an unregistered security broker. One crypto influencer that goes by the Twitter name of The Wolf said, SEC suing Coinbase could cut some slack for Binance as well.
So in SEC’s complaint vs Coinbase, it states that they’ve been acting as an unregistered broker since 2019.
Yet…. the on April 14th, 2021 $COIN became a public company on the Nasdaq.
How on God’s green earth do they possibly believe this lawsuit will ever hold up in court?… pic.twitter.com/tYyEroRN6F
— The Wolf (@WolfOfPoloniex) June 6, 2023
Cointelegraph reached out to Coinbase to get the comments on the recent allegations in the lawsuit but didn’t get a response at press time.