After months of hints that the US Securities and Exchange Commission (SEC) would sue US crypto giant Coinbase, the time has finally come.
The lawsuit (1:23-cv-04738), filed Tuesday in the Southern District of New York, alleges that Coinbase and its parent company CGI violated securities laws by operating as an unregistered broker for its main crypto trading platform , the product Coinbase Prime, acted , and the Coinbase wallet. In addition to these alleged violations, the SEC is suing Coinbase’s staking-as-a-service platform, which allows its customers to earn a return for participating in proof-of-stake blockchains.
The Alabama Securities Commission also issued an order to Coinbase Tuesday morning stating, “The action is the result of a federal task force of ten state securities commissions including Alabama, California, Illinois, Kentucky, Maryland and New York.” Jersey, South Carolina , Vermont, Washington and Wisconsin.” This prompts Coinbase to respond within 28 days and explain “why they should not be directed to stop selling unregistered securities in Alabama.”
Paul Grewal, Coinbase’s Chief Legal Officer and General Counsel, responded to the lawsuit with this statement to The Verge:
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 with a proven track record of compliance. The solution is legislation that allows fair road traffic rules to be developed transparently and applied equally, rather than litigation. In the meantime we will continue our business as usual,
After the SEC sent a “Wells Notice” to Coinbase in March indicating that enforcement action should be taken, Grewal wrote in a blog post, “Coinbase does not list securities or offer its customers any products in which.” they are securities … We remain satisfied of the legality of our assets and services and, if necessary, we welcome legal proceedings to provide the clarity we have advocated and to show that the SEC just wasn’t fair or reasonable when it comes to their exposure to digital assets.”
This filing comes a day after the SEC filed a lawsuit against Binance, the world’s largest crypto exchange, on the grounds that it operates illegally in the US (among many, many other things detailed here). Portal reports that the data company Nansen tracked Since this lawsuit was filed, over $790 million has been withdrawn from Binance and its US subsidiary.
There are 13 SEC-designated tokens that Coinbase says it has “provided for trading in crypto assets that are offered and sold as investment contracts, and therefore as securities.” These include tokens for Solana (SOL), the Axie Infinity game (AXS), the Polygon blockchain (MATIC), the virtual world The Sandbox (SAND) and the “Chiliz” (CHZ) token, which was created by the fan token company Socios.
In a statement, SEC Chairman Gary Gensler said, “We allege that Coinbase, while subject to securities laws, has commingled and unlawfully offered exchange, broker-dealer and clearinghouse functions.”
Gesler continued, “Coinbase’s alleged failures deprive investors of key protections, including anti-fraud and anti-tampering regimes, proper disclosure, safeguards against conflicts of interest, and routine SEC inspections.” Additionally, Coinbase, we claim, has its staking -as-a-service program has never been registered under securities laws, which in turn deprives investors of important disclosures and other protections.”
In an interview aired on Bloomberg, Gensler questioned the value of the tokens, saying crypto companies are operating in “a wild west with a bunch of casino operators.”
Update from June 6th 10:38am ET: Added Coinbase’s answer and additional comments from Gensler.