SEC presses charges against Coinbase for violation of US securities rules

The SEC sued Coinbase, alleging that the company was operating as an unregistered securities exchange and broker; the suit comes just one day after the SEC sued Binance

By Shashank Bhardwaj

Published: Jun 7, 2023 04:37:48 PM IST

Updated: Jun 7, 2023 04:49:00 PM IST

Full Bio

Image: Shutterstock

The US Securities and Exchange Commission sued New York-based crypto exchange Coinbase, alleging that the company was functioning as an unregistered broker and exchange.

The SEC lawsuit demands that Coinbase should be “ permanently restrained and enjoined” from offering unregistered securities and accuses the company of evading the disclosure scheme for securities markets.

The suit comes after the SEC also filed charges against Coinbase’s rival crypto exchange Binance and its CEO.

Binance was slapped with 13 charges under various securities laws but the allegations against Coinbase have left many members of the crypto industry puzzled mainly because Coinbase is a publicly listed company.

“These trading platforms, they call themselves exchanges, are commingling a number of functions,” said Gary Gensler, SEC chair. “We don’t see the New York Stock Exchange operating a hedge fund,” Gensler continued. Gensler also alleged that the crypto exchange has deprived its customers of crucial protections which prevent fraud and manipulation.

The SEC claims that Coinbase’s staking program which includes five stakable crypto assets, makes it an investment contract and, thereby, a security. Coinbase was already involved in a staking battle with the SEC with the company claiming that its staking products did not qualify as securities.

Director of the SEC’s Division of Enforcement, Gurbir Grewal said:

“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.”

In retaliation, the Chief legal officer of Coinbase, Paul Grewal, claimed that the SEC’s reliance on an enforcement-only approach, that lacked clear rules for the digital asset industry, hurts the nation’s economic competitiveness.

He also said, “The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation. In the meantime, we’ll continue to operate our business as usual.”

Interestingly, Coinbase had received a warning from the SEC back in March stating that the administration may soon take action against the entity for potential unregistered securities operations. Coinbase shifted more of its focus to its Canadian market in response, clarifying that the country enables innovative operations with clearer rules for crypto firms.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash