SEC Files Lawsuit Against Coinbase for Alleged Breach of Securities Laws
The Securities and Exchange Commission has taken regulatory action against Coinbase, the largest cryptocurrency trading platform in the US, alleging that it acted as an unregistered national securities exchange, broker, and clearing agency. The SEC pointed out that traditional securities markets typically separate brokers, exchanges, and clearing agencies, but Coinbase “intertwines” these services. This is just the latest regulatory action against a major cryptocurrency company.
The agency argued that because Coinbase did not register as a broker, national exchange or clearinghouse, it prevented investors from receiving protection. These include SEC audits, safeguards against conflicts of interest and accounting requirements. The agency argued that Coinbase does not qualify for any applicable registration exemptions for any of the three activities. The company has been accused of earning billions of dollars in transaction fees by “facilitating the illegal purchase and sale of crypto-asset securities” since at least 2019.
Grewal, the SEC’s director of enforcement, said in a statement: “As alleged in our complaint, Coinbase was fully aware of the applicability of federal securities laws to its business, but willfully refused to comply. While Coinbase’s calculated decisions may have earned it billions, it did so at the expense of investors when they denied the protection to which they are entitled.
Last July, it was reported that the Securities and Exchange Commission was investigating Coinbase over whether the company illegally sold unregistered securities. As The New York Times points out, news of the agency’s complaint comes on the same day that Paul Grewal, Coinbase’s general counsel, is scheduled to testify before a congressional committee regarding a new bill aimed at introducing some crypto regulations.
In March, Coinbase said it had received notification from the SEC that the agency’s employees had discovered potential violations of the Securities Act, but were not given many details. The company also claimed that it “made several registration proposals to the SEC over the months to which the SEC ultimately declined to respond.”
On Monday, the Securities and Exchange Commission (SEC) filed 13 charges against Binance and its CEO Changpeng Zhao. The agency alleged that Binance circumvented its compliance procedures and lied to investors and regulators. The SEC also alleged that Coinbase mishandled customer funds. In addition, the agency is involved in the government’s case against FTX founder and former CEO Sam Bankman-Fried.
Meanwhile, Coinbase is facing nationwide regulatory action. A task force made up of regulators from the states of Alabama, California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington and Wisconsin led to the offering orders against the exchange. In a statement spotted by Cointelegraph, the Alabama Securities Commission accused the company of “violating securities law by offering accounts in its wagering program to Alabama residents without registering to offer or sell these securities.” The company was given 28 days to show why it was not ordered to cease and desist from selling securities registered in the country.
