NEW YORK, June 6 (Portal) – The U.S. Securities and Exchange Commission on Tuesday sued Coinbase (COIN.O), accusing the largest U.S. cryptocurrency exchange of operating illegally for not first registering with the regulator .
The lawsuit is the SEC’s second in two days against a major crypto exchange, following the lawsuit against Binance, the world’s largest cryptocurrency exchange, and its founder Changpeng Zhao.
Both civil cases are part of SEC Chairman Gary Gensler’s efforts to enforce jurisdiction over the crypto markets, which he again on Tuesday called the “wild west” of investing, and to protect investors while boosting their confidence in capital markets.
“Crypto markets are undermining that confidence, and I would say this: It’s undermining our entire capital markets,” Gensler told CNBC on Wednesday.
Paul Grewal, Coinbase’s general counsel, said in a statement the company would continue to operate as normal.
“The SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is damaging to America’s economic competitiveness and to companies like Coinbase with a proven track record of compliance,” he added.
Shares in Coinbase parent company Coinbase Global Inc. fell $9.37, or 16.2%, to $49.33 after previously falling as much as 20.9%.
In a complaint filed in federal court in Manhattan, the SEC said Coinbase has made billions of dollars since at least 2019 by acting as an intermediary in crypto transactions while circumventing disclosure requirements to protect investors.
The SEC said Coinbase traded at least 13 crypto assets that are securities that should have been registered, including tokens like Solana, Cardano, and Polygon.
Founded in 2012, Coinbase recently served more than 108 million customers. At the end of March, Coinbase had over $130 billion in crypto assets and customer funds on its balance sheet. Transactions generated 75% of its $3.15 billion in net sales last year.
“CAN’T IGNORE THE RULES”
Tuesday’s complaint addressed several aspects of Coinbase’s business, including Coinbase Prime, which routes orders; Coinbase Wallet, which gives investors access to liquidity; and the deployment service Coinbase Earn.
In the staking program, Coinbase pools crypto assets and uses them to facilitate activity on the blockchain network in exchange for “rewards” it gives to its customers after earning a commission for itself.
The SEC said Coinbase is “fully aware” that its business is subject to federal securities laws but ignores it.
“You just can’t ignore the rules because you don’t like them or because you would prefer others,” Gurbir Grewal, the SEC’s chief of law enforcement, said in a statement.
Tuesday’s lawsuit seeks civil penalties, recovery of ill-gotten gains and an injunction. The SEC warned Coinbase in March that securities fees could apply.
Tensions between Coinbase and Gensler date back to 2021, when the SEC threatened a lawsuit if Coinbase allowed its users to earn interest by lending digital assets. The company scrapped the idea.
In the Binance case, the SEC accused the exchange of increasing trading volume, diverting customer funds, improperly merging assets, failing to keep wealthy US customers off its platform, and misleading customers about its controls.
Binance vowed to vigorously defend itself against the lawsuit, saying the case reflects the SEC’s “misguided and deliberate refusal” to provide clarity and guidance to the crypto industry.
The case is SEC v. Coinbase Inc et al., U.S. District Court, Southern District of New York, No. 23-04738.
Reporting by Jonathan Stamp in New York; Additional reporting from Hannah Lang and Michelle Price in Washington, DC and Manya Saini in Bengaluru; Adaptation by Jason Neely, Louise Heavens, Chizu Nomiyama and Nick Zieminski
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