US SEC charges crypto platform Coinbase, one day after suing Binance

NEW YORK (Reuters) – The U.S. Securities and Exchange Commission on Tuesday sued Coinbase (COIN.O), the largest U.S. cryptocurrency exchange, for operating illegally after failing to register with regulators first. bottom.

The lawsuit is the SEC’s second case against a major cryptocurrency exchange in the last two days, following a lawsuit against the world’s largest cryptocurrency exchange Binance and its founder Zhao Changpeng.

Both civil lawsuits assert jurisdiction over the cryptocurrency market, which SEC Chairman Gary Gensler once again dubbed the “wild west” of investments on Tuesday, purporting to protect investors while strengthening confidence in the capital markets. This is part of our efforts.

Gensler told CNBC on Wednesday, “The cryptocurrency market is undermining that trust.

Coinbase general counsel Paul Grewal said in a statement that the company will continue to operate as normal.

“The SEC’s reliance on an enforcement-only approach, in the absence of clear rules for the digital asset industry, will undermine U.S. economic competitiveness and companies like Coinbase that have demonstrated a commitment to compliance. It hurts,” he added.

Shares of Coinbase Global Inc, the parent company of Coinbase, fell by $9.37 (16.2%) to $49.33 after previously dropping as much as 20.9%.

In a complaint filed in Manhattan federal court, the SEC said Coinbase has been operating as an intermediary in cryptocurrency trading since at least 2019 while circumventing investor-protection disclosure requirements, making billions. He said he was making dollars.

According to the SEC, Coinbase traded at least 13 cryptocurrencies that should be registered securities, including tokens like Solana, Cardano and Polygon.

Founded in 2012, Coinbase recently served more than 108 million customers, leaving $130 billion in customer crypto assets and funds on its balance sheet at the end of March. 75% of last year’s net revenue of $3.15 billion came from transactions.

“You can’t ignore the rules”

Tuesday’s complaint addressed several aspects of Coinbase’s business, including Coinbase Prime, which routes orders. Coinbase Wallet gives investors access to liquidity. Coinbase Earn Staking Service.

Under the staking program, Coinbase pools crypto assets and uses them to drive activity on the blockchain network, in exchange for “rewards” that it offers to customers after receiving commissions.

The SEC said Coinbase was “fully aware” that its business is subject to federal securities laws, but ignored it.

“We cannot ignore a rule simply because we don’t like it or prefer a different rule,” SEC Executive Director Gerbil Grewal said in a statement.

Tuesday’s lawsuit seeks civil penalties, recovery of unjust enrichment and injunctive relief. The SEC warned Coinbase in March that it could be subject to brokerage fees.

Coinbase’s friction with Gensler dates back to 2021, when the SEC threatened lawsuits if Coinbase let users earn interest by lending out digital assets. The company withdrew the idea.

In the Binance case, the SEC said the exchange inflated trading volumes, misappropriated customer funds, improperly mixed assets, failed to keep wealthy U.S. customers off the platform, and misled customers about its controls. accused as.

Binance has pledged to defend the lawsuit vigorously, saying the lawsuit reflects the SEC’s “erroneous and willful refusal” to provide clarity and guidance to the cryptocurrency industry. .

The action is SEC v. Coinbase Inc et al, United States District Court, Southern District of New York, No. 23-04738.

Reported by Jonathan Stempel, New York. Additional reporting by Hannah Lang and Michelle Price from Washington DC and Manya Saini from Bangalore.Editing: Jason Neely, Louise Heavens, Chizu Nomiyama, Nick Zieminski

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