The US Securities and Exchange Commission is suing crypto exchange Coinbase, claiming its owners have been earning billions of dollars while operating illegally.
Charges include operating a crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency.
Coinbase also faces SEC charges for failing to register the offer and sale of its crypto asset staking-as-a-service program.
The move comes only 24 hours after the SEC served legal papers to crypto platform Binance. It claimed the exchange – and its CEO Changpeng ‘CZ’ Zhou – had been offering unregistered securities with its BNB token and the BUSD stablecoin.
Legal papers also branded Binance’s staking service as a violation of securities laws.
According to today’s SEC action, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities “since at least 2019”. The SEC alleges that Coinbase “intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law”.
The independent government financial watchdog claims that, through unregistered services, Coinbase allegedly:
- Provides a marketplace and brings together the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interact;
- Engages in the business of effecting securities transactions for the accounts of Coinbase customers; and
- Provides facilities for comparison of data respecting the terms of settlement of crypto asset securities transactions, serves as an intermediary in settling transactions in crypto asset securities by Coinbase customers, and acts as a securities depository.
“We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions,” said SEC Chair Gary Gensler, announcing the lawsuit.
“In other parts of our securities markets, these functions are separate. Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC. Further, as we allege, Coinbase never registered its staking-as-a-service program as required by the securities laws, again depriving investors of critical disclosure and other protections.”
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement added: “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. While Coinbase’s calculated decisions may have allowed it to earn billions, it’s done so at the expense of investors by depriving them of the protections to which they are entitled. Today’s action seeks to hold Coinbase accountable for its choices.”