The United States Securities and Exchange Commission (SEC) has filed a lawsuit against Coinbase, the New York crypto exchange for offering unregistered securities.
The SEC’s lawsuit alleged that Coinbase has never registered as a broker, national stock exchange or clearing agency, circumventing the Securities Markets Disclosure Scheme. The SEC alleges that several tokens offered by the crypto exchange, including Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), The Sandbox (SAND), Axie Infinity (AXS), Chiliz ( CHZ), Flow (FLOW), Internet Computer (ICP), Near (NEAR), Voyager Token (VGX), Dash (DASH) and Nexo (NEXO) are considered securities.
Today we commissioned Coinbase, Inc. of operating its crypto asset trading platform as an unregistered stock exchange, broker and domestic clearing agency and for failing to register the offering and sale of its participation program as a crypto asset service. pic.twitter.com/hCdVMw8B2v
— US Securities and Exchange Commission (@SECGov) June 6, 2023
The lawsuit also alleges that Coinbase has operated as an unregistered security broker since 2019, nearly two years before its April 2021 initial public offering.
The lawsuit alleges that Coinbase’s staking program includes five stackable crypto assets, making the staking program an investment contract and therefore a security. Coinbase was already fighting a staking battle with the SEC, claiming that its staking products did not qualify as securities despite Kraken previously settling with the SEC and ending its staking services in the United States.
Addressing Coinbase’s latest lawsuit, SEC Chairman Gary Gensler said the crypto exchange allegedly deprived its customers of critical protections that prevent fraud and manipulation, and avoided proper disclosure and safeguards against conflicts of interest. Gurbir Grewal, director of the SEC’s Division of Enforcement, said:
“As alleged in our complaint, Coinbase was fully aware of the applicability of federal securities laws to its business activities, but deliberately refused to follow them”
Coinbase’s share price fell 15% in pre-market trading after the SEC announced its lawsuit on June 6.
Coinbase stock price movement. Source: Google
The SEC’s lawsuit against Coinbase comes just a day after the securities regulator sued Binance for violating securities law and misappropriating customer funds. Although Binance was charged with 13 counts of violations under various securities laws, the allegations against Coinbase have puzzled many in the crypto industry, mainly because Coinbase is a publicly traded company.
Binance CEO Changpeng Zhao reacted to Coinbase’s lawsuit by taking a dig at the SEC.
If you have to pick a fight with everyone, maybe you’re to blame. ♂️
— CZ Binance (@cz_binance) June 6, 2023
Many members of the crypto community wondered how Coinbase was allowed to go public in 2021 if it operated as an unregistered security agent. Crypto Twitter member The Wolf said that the SEC suing Coinbase could cut into Binance’s margin a bit.
Thus, in the SEC complaint against Coinbase, it is stated that they have been acting as an unregistered broker since 2019.
However… on April 14, 2021 $ COIN became a public company on the Nasdaq.
How on God’s green earth do you think this lawsuit will ever hold up in court?… pic.twitter.com/tYyEroRN6F
— The Wolf (@WolfOfPoloniex) June 6, 2023
Cointelegraph reached out to Coinbase for comment on the lawsuit’s allegations, but did not receive a response by publication.
