The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Coinbase Global Inc., the largest U.S. crypto asset trading platform, for allegedly violating securities laws. The SEC claims that Coinbase has been operating as an unregistered broker, exchange and clearing agency since 2019, and has allowed its users to trade 13 crypto tokens that were actually unregistered securities. The SEC seeks civil penalties, disgorgement of ill-gotten gains, and a permanent injunction to prevent Coinbase from further violating SEC rules.
The lawsuit, which was filed in the U.S. District Court for the Southern District of New York on June 6, 2023, is the second action by the SEC against a major crypto player in two days. On June 5, 2023, the SEC sued Binance, the world’s largest crypto exchange by volume, over securities matters. The SEC accuses Binance of making false statements to investors and violating securities laws.
The SEC alleges that Coinbase provided a marketplace for securities transactions, effected securities transactions for its customers’ accounts, and served as an intermediary and depository in settling securities transactions. The SEC also alleges that Coinbase failed to register its staking program, which allowed customers to earn profits from the proof of stake mechanisms of certain blockchains and Coinbase’s efforts.
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The SEC argues that Coinbase’s failure to register has deprived investors of significant protections, such as inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest. The SEC also charges Coinbase’s holding company, Coinbase Global Inc. (CGI), as a control person of Coinbase and thus liable for certain of Coinbase’s violations. The SEC seeks injunctive relief, disgorgement of ill-gotten gains, civil penalties, and other remedies.
Coinbase has denied the allegations and said it will continue to operate its business as usual and said that it has been seeking reasonable crypto rules from the SEC for years, but only received legal threats instead. The company said that it is confident in the legality of its assets and services, and that it will continue to operate its business as usual. Coinbase also accused the SEC of conducting a cursory investigation and not being fair or reasonable when it comes to its engagement on digital assets…
In a blog post published on March 22, 2023, Coinbase’s chief legal officer Paul Grewal said that the SEC delivered its lawsuit after a “cursory investigation” and that Coinbase has been asking for reasonable crypto rules for Americans. Grewal also said that Coinbase is confident in the legality of its assets and services and that it welcomes a legal process to provide clarity and demonstrate that the SEC has not been fair or reasonable when it comes to its engagement on digital assets.
