The U.S. Securities and Exchange Commision (SEC) has filed charges against major exchange Coinbase, accusing it of acting as an "unregistered broker, exchange and clearing agency."
The lawsuit from the regulator comes two and a half months after it served a Wells notice to Coinbase and only a day after it sued Binance and its founder Changpeng Zhao.
The SEC charged Coinbase for operating as an unregistered securities exchange, broker, and clearing agency. According to the regulator these three functions were merged in Coinbase's operating model, which contradicts the Securities Exchange Act, enacted by U.S. Congress in 1934, that seeks to prevent the conflicts of interest arising from such design.
The SEC also charged the exchange for failing to register the offer and sale of its crypto asset staking-as-a-service program. According to the complaint, the failure to register has deprived investors of significant protections.
Numerous assets were mentioned in the case, with multiple confirmations of why these assets are to be considered as securities, including tweets and promos.
The SEC asked the Court to disgorge all ill-gotten gains and penalties and to permanently enjoin Coinbase and all persons connected from violating the law.
"You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: the consequences for the investing public are far too great. 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,” - said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
Brian Armstrong, Coinbase CEO, commented on the complaint saying that the company is “proud to represent the industry in court to finally get some clarity around crypto rules” and criticized the SEC for attacking instead of providing proper regulation. The head of the company is known for his public stance against the restrictive actions of U.S. regulators and takes part in different community initiatives, including the recent the ‘Stand With Crypto’ NFT campaign.
Recently Coinbase unsuccessfully tried to sue the SEC for not responding to a petition that the company filed with the regualtor last July, requesting that it “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities.”
Coinbase is the only crypto exchange publicly traded on the U.S. based NASDAQ stock exchange. It complies with all the reporting requirements set for publicly traded companies in the U.S., such as submission of financial reports in compliance with SEC requirements. It also holds money transmitter licenses for 45 U.S. States and numerous licensesin other countries in which it operates.
Similarly to Binance, Coinbase suffered significant fund outflows from the platform on announcement of the SEC's action. Shares in Coinbase's holding company fell by 20.9%.
The current tension between the SEC and the crypto exchange is part of an unprecedented crackdown on the industry by the regulator and should not be viewed in isolation. Obviously, these events will shape the future of crypto in the USA and will determine the relationships between authorities and the industry players. We will Observe them collectively and will keep you updated.
