The United States Securities and Exchange Commission (SEC) has initiated legal action against Coinbase on the allegations it violated securities regulations by operating an unregistered security broker.
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 U.S. SEC claimed that Coinbase has operated without proper registration as a securities broker since 2019, two years before its initial public offering (IPO) in April 2021. The securities regulator also accused Coinbase of operating as an unregistered broker, securities exchange, and clearing agency, thus bypassing the necessary disclosure requirements for securities markets.
According to the securities regulator, several tokens offered by Coinbase, including Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Sandbox, Axie Infinity, Chiliz (CHZ), FLOW, ICP, NEAR, VGX, DASH, and NEXO, meet the criteria to be classified as securities.
The lawsuit also focused on Coinbase’s staking program, which allows investors to earn returns when the company verifies and secures transactions on the blockchain networks—the U.S. SEC argued that this constitutes an investment contract and falls within the category of securities.
Notably, Coinbase was already engaged in a legal dispute with the SEC over its staking offerings. The crypto exchange maintains that its staking products do not qualify as securities.
Meanwhile, U.S. SEC Chair, Gary Gensler, has criticized Coinbase for allegedly denying its customers necessary safeguards against fraud and manipulation. He emphasized Coinbase’s lack of adequate disclosure and failure to address conflicts of interest.
Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC. https://t.co/FwpdmENvoL
— Gary Gensler (@GaryGensler) June 6, 2023
The Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, also stated that Coinbase was fully aware of the federal securities laws applicable to its business but chose not to comply with them.
The timing of the SEC’s lawsuit against Coinbase has drawn a lot of attention. The lawsuit against Coinbase comes just 24 hours after the securities regulator filed a lawsuit against Binance. Binance was charged with 13 counts of securities law violations, including commingling customer funds.
The allegations against Coinbase have left many in the crypto industry puzzled, given that Coinbase is a publicly listed company. The unique circumstances surrounding the lawsuit have sparked considerable interest and discussion within the industry.
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