SEC sues Coinbase, says crypto exchange never registered as a broker
Coinbase accused of operating as unregistered broker
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The Securities and Exchange Commission (SEC) is suing U.S. cryptocurrency exchange Coinbase Inc., accusing it of operating as an unregistered broker.
In the complaint filed in Manhattan federal court, the SEC said that since at least 2019 Coinbase has pocketed billions of dollars by collecting transaction fees from investors without the disclosures and protections of registration, exposing its customers to risk.
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Because of its failure to register, Coinbase "has for years defied the regulatory structures and evaded the disclosure requirements that Congress and the SEC have constructed for the protection of the national securities markets and investors," the complaint said.
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Also on Tuesday, the New Jersey Office of the Attorney General and the Division of Consumer Affairs announced that "the Bureau of Securities issued a summary cease and desist order against Coinbase for violations of the Securities Law and corresponding penalties in connection with Coinbase’s crypto staking offerings."
The summary order will assess a $5 million penalty against Coinbase for the sale of unregistered securities, according to New Jersey Attorney General Matthew Platkin.
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Shares for the crypto company tumbled over 12% on the development along with Bitcoin, which traded down to $25,000 before rebounding.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| COIN | COINBASE GLOBAL INC. | 319.13 | -5.11 | -1.58% |
"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," Gary Gensler, the SEC chairman, said in a tweet.
In response, Coinbase CEO Brian Armstrong tweeted the company "was proud to represent the industry in court to finally get some clarity around crypto rules."
Meanwhile, Paul Grewal, Coinbase's chief legal officer and general counsel, said in a statement to FOX Business that "The SEC's reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance."
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"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."
The SEC has also filed complaints against other foreign crypto companies for being unregulated securities exchanges, and U.S. firms for their staking products and pushing customers to earn interest on their crypto.
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The lawsuit filed Tuesday comes one day after the regulator sued crypto exchange Binance and its founder Changpeng Zhao.
Changpeng Zhao, CEO of Binance, speaks at the Delta Summit, Malta's official Blockchain and Digital Innovation event promoting cryptocurrency, in St Julian's, Malta. REUTERS/Darrin Zammit Lupi ( REUTERS/Darrin Zammit Lupi / Reuters Photos)
Binance and the cryptocurrency exchange’s CEO have collectively been hit with 13 charges from the SEC, accusing Binance Holdings, Zhao, BAM Trading and BAM Management U.S. Holdings of committing breaches of the Securities Act and the Exchange Act, two U.S. laws pertaining to securities.
The agency’s filing of the complaint took place Monday.