Following the revelation of charges filed against Binance and its founder, the Securities and Exchange Commission (SEC) has filed similar charges against Coinbase (NASDAQ:COIN) – the US’s only publicly traded crypto exchange.
The charges against Coinbase include operating an unregistered securities exchange, acting a broker, and clearing agency without approval.
The SEC has also targeted Coinbase’s “crypto staking as a service” program.
Shares in Coinbase have tanked on the news, currently down by over 15% following an over 5% drop yesterday.
The timing of the SEC enforcement action is interesting as Coinbasee Chief Legal Officer, Paul Grewal, is scheduled to testify at a hearing of the House Agriculture Committee today.
Chair of the SEC, Gary Gensler, issued a statement on the enforcement action stating that Coinbase’s alleged failures deprive investors of protections.
“… as we allege, Coinbase never registered its staking-as-a-service program as required by the securities laws, again depriving investors of critical disclosure and other protections.”
Gurbir Grewal, SEC Director of Enforcement, said you simply cannot ignore existing rules.
“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. While Coinbase’s calculated decisions may have allowed it to earn billions, it’s done so at the expense of investors by depriving them of the protections to which they are entitled. Today’s action seeks to hold Coinbase accountable for its choices.”
The SEC claims that Coinbase allegedly:
- Provides a marketplace and brings together the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interact;
- Engages in the business of effecting securities transactions for the accounts of Coinbase customers; and
- Provides facilities for comparison of data respecting the terms of settlement of crypto asset securities transactions, serves as an intermediary in settling transactions in crypto asset securities by Coinbase customers, and acts as a securities depository.
The SEC claims that Coinbase’s failure to register has deprived investors of significant protections.
Similar to the Binance allegations, the SEC claims many digital assets are securities. To quote the complaint:
“Coinbase has made available for trading crypto assets that are being offered and sold as investment contracts, and thus as securities. This includes, but is not limited to, the units of each of the crypto asset securities further described below—with trading symbols SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO—(the “Crypto Asset Securities”).”
The US House of Representatives recently distributed draft legislation that may ameliorate many of the issues mentioned in the SEC’s complaint. While the Republican-controlled House has been more open to Fintech innovation and digital assets in general, Chair Gensler has consistently stated that all digital assets are securities, minus Bitcoin, and thus regulated under existing securities law.
Filed in U.S. District Court for the Southern District of New York, the SEC’s complaint alleges that Coinbase and CGI violated registration provisions of the Securities Exchange Act of 1934 and that Coinbase violated the securities offering registration provisions of the Securities Act of 1933. The complaint seeks injunctive relief, disgorgement of ill-gotten gains, interest, penalties, and other equitable relief.