The U.S. Securities and Exchange Commission (SEC) подала иск against the Coinbase cryptocurrency exchange a day after proceedings against Binance began.
The regulator contends that the platform violated securities laws. In the regulator’s view, a number of tokens on the exchange fall under this definition: SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH and NEXO.
The SEC said that Coinbase unlawfully combines three functions — acting as a broker, an exchange and a clearinghouse, roles that are usually separated in traditional markets. The regulator also targeted the staking Coinbase Earn program.
“Coinbase has earned billions of dollars by illegally facilitating the buying and selling of securities. The company intertwines the traditional services of a stock exchange, a broker, and a clearinghouse, failing to register any of these services with the Commission as required by law.”
The SEC argued that the lack of registration deprived Coinbase customers of important protections, including regulatory oversight, record-keeping requirements and preventing conflicts of interest.
According to the suit, Coinbase Global Inc., the holding company, is the controlling party behind the exchange and therefore bears responsibility for some of the company’s alleged violations.
In the wake of the complaint, the exchange’s shares fell about 19% in a few hours — from $58 to $47. The majority of the digital assets on the SEC’s list also showed negative momentum.
Bitcoin did not react as strongly to the news of the Coinbase proceedings as after the Binance lawsuit. According to CoinGecko, in the last hour the asset’s price hardly moved. At the time of writing, the leading cryptocurrency is trading at $25,530.
In March 2023 Coinbase received a notice from the regulator about an investigation concerning the listing procedure on the platform and its products — Coinbase Prime, Coinbase Wallet and the staking service Coinbase Earn.
On 25 April Coinbase filed a civil complaint to obtain a response from the Commission regarding the July 2022 inquiry. In it, the company sought clarity on crypto industry regulation.
The SEC called the firm’s claims ‘unfounded’. Officials noted that the agency is not obliged to issue new rules, and that the company ‘has no right to sue the regulator’.
On 22 May Coinbase filed a new complaint with the SEC to obtain a response from the regulator regarding the July inquiry.
Later, the U.S. Chamber of Commerce expressed support for Coinbase and accused the regulator of ‘deliberately creating a dangerous and uncertain environment’ for cryptocurrency companies in the country.
The SEC’s suit against Coinbase together with the suit against Binance underscores the Commission’s aim to signal to the community that regulation of crypto projects in the United States is tightening, said GMT Legal managing partner Andrey Tugaryan in a ForkLog comment.
“If the regulator wins, Coinbase faces temporary or permanent suspension of operations, as well as penalties, which, of course, will affect its customers in the United States,” the lawyer noted.
The lawyer declined to predict the outcome of the case, but stressed that regardless of the result, the SEC’s battles with Coinbase and Binance will become significant precedents and will contribute to more transparent regulation of the crypto sector in the United States.
“Right now we see only broad trends toward tightening, but there are no clear norms or provisions — crypto firms do not know how to operate in the U.S. market. Perhaps the outcome of these disputes will help develop more transparent and precise regulation, clarity for crypto projects on whether they can operate in the United States, and, if so, how,” the expert added.
Earlier, on 5 June 2023, the SEC filed a lawsuit against the bitcoin exchange and its CEO Changpeng Zhao. The regulator alleged 13 charges, including selling unregistered securities. The suit also claims that Binance failed to register its platform as an exchange, broker-dealer or clearing agency, as well as its U.S. subsidiary.