March 27, 2024
Latest Cryptocurrency News

SEC Files Lawsuit against Coinbase One Day after Suing Binance

The US Securities and Exchange Commission (SEC) has taken legal action against Coinbase, the largest cryptocurrency exchange in the United States. The SEC alleges that Coinbase has been operating unlawfully by failing to register with the regulatory body. This lawsuit comes just one day after the SEC sued Binance, the world’s largest cryptocurrency exchange, and its founder, Changpeng Zhao, alleging misconduct and unregistered sales.

These civil cases are part of SEC Chair Gary Gensler’s efforts to establish regulatory authority over the cryptocurrency markets. Gensler has described these markets as a “Wild West” of investment and aims to protect investors and restore trust in the capital markets. In an interview with CNBC, Gensler emphasized that the crypto markets are eroding trust and undermining the overall capital markets.

Coinbase’s general counsel, Paul Grewal, issued a statement affirming that the company will continue its normal operations. Grewal criticized the SEC’s approach, stating that the enforcement-focused strategy without clear rules for the digital asset industry is detrimental to America’s economic competitiveness. He highlighted Coinbase’s commitment to compliance.

Following the SEC’s lawsuit, the share price of Coinbase’s parent company, Coinbase Global Inc, experienced a significant decline. The shares fell by $9.37, or 16.2%, reaching $49.33, with a previous drop of up to 20.9%.

In its complaint filed in a Manhattan federal court, the SEC alleges that since at least 2019, Coinbase has been profiting from acting as an intermediary in cryptocurrency transactions while evading disclosure requirements designed to protect investors. The SEC claims that Coinbase traded at least 13 crypto assets classified as securities that should have been registered, including tokens such as Solana, Cardano, and Polygon.

Established in 2012, Coinbase has served over 108 million customers and held $130 billion of customer crypto assets and funds on its balance sheet as of March. The majority of its $3.15 billion in net revenue last year came from transactions. The SEC’s complaint addresses various aspects of Coinbase’s business, including Coinbase Prime, which facilitates order routing; Coinbase Wallet, which provides investor access to liquidity; and the Coinbase Earn staking service.

Regarding the staking program, the SEC alleges that Coinbase pools crypto assets and utilizes them to facilitate blockchain network activities, rewarding customers after deducting a commission for itself.

The SEC argues that Coinbase was fully aware of its obligations under federal securities laws but chose to disregard them. Gurbir Grewal, the SEC’s Enforcement Chief, stated that rules cannot be ignored simply because they are disliked, or alternative preferences exist.

The lawsuit filed by the SEC seeks civil fines, the recovery of unlawfully obtained profits, and injunctive relief. In March, the SEC had previously notified Coinbase that it might face securities charges.

Coinbase had previously clashed with Gensler, particularly in 2021 when the SEC threatened legal action if Coinbase allowed users to earn interest by lending digital assets. As a result, Coinbase abandoned the initiative.

In the case of Binance, the SEC accused the exchange of inflating trading volumes, misusing customer funds, commingling assets inappropriately, failing to prevent wealthy US customers from accessing its platform, and deceiving customers about its controls. Binance has pledged to vigorously defend against the lawsuit and believes that the SEC’s actions reflect a deliberate refusal to provide clarity and guidance to the cryptocurrency industry.

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