Coinbase, one of the leading cryptocurrency exchanges, has been accused by the Securities and Exchange Commission (SEC) of operating as an unregistered national securities exchange, broker-dealer and clearing agency. THE The SEC also accused Coinbase for not registering its crypto asset staking program as a service. The complaint alleges that since 2019, Coinbase has facilitated the buying and selling of billions of dollars worth of crypto asset securities without proper registration, combining the functions of an exchange, broker and clearing agency.
The SEC says Coinbase’s failure to register has stripped investors of essential protections such as SEC inspection, record-keeping requirements, and conflict-of-interest safeguards. The charges also extend to Coinbase’s holding company, Coinbase Global Inc., as it is considered a controlling person and therefore responsible for some of Coinbase’s violations.
Additionally, the SEC alleges that Coinbase conducted an unregistered securities offering through its staking-as-a-service program. This program allows clients to earn profits through blockchain transaction validation services. Coinbase reportedly aggregated customers’ staking crypto assets, performed the necessary validations, and rewarded customers with a portion of the generated rewards. The SEC states that Coinbase did not register these offers and sales as required by law.
Just yesterday, the SEC filed a lawsuit against Binance and its CEO CZ, alleging that the exchange violated securities laws, brazenly dodged SEC regulations, and failed to properly inform its consumers. The combination of lawsuits in two days indicates a major effort by US regulators to set a new tone in the regulation and enforcement of securities law to digital assets.
SEC Chairman Gary Gensler critical Coinbase’s alleged deprivation of essential investor protections. Gurbir S. Grewal, Director of the SEC’s Enforcement Division, accused Coinbase of willfully refusing to follow federal securities laws, noting that the consequences for the investing public are significant.
Like the SEC’s complaint against Binance, the regulator is seeking injunctive relief, restitution of ill-gotten gains, penalties, and other equitable remedies. The investigation was conducted by the SEC’s Crypto Assets and Cyber Unit, with assistance from the San Francisco regional office and the Multistate Task Force made up of ten state securities regulators.
Coinbase has yet to publicly respond to the accusations. The outcome of this case will have significant implications for the regulation of cryptocurrency exchanges in the United States and could constitute a major change for the growth of the industry in the country. It is important to note that SEC Chairman Gary Gensler is on record as differentiating bitcoin from cryptocurrencies in general, claiming that bitcoin alone is a commodity. Businesses and individual Bitcoin-focused users should not feel exposed to regulatory risk similar to the securities-focused actions seen this week.
