The Securities and Exchange Committee filed a lengthy lawsuit against Coinbase on Tuesday, accusing the largest crypto exchange in the US of operating as an illegal, unregistered broker and exchange for its crypto exchange, Coinbase Prime, and its Coinbase Wallet. The legal action comes less than 24 hours after the SEC filed a separate suit against Binance accusing it of running an illegal crypto scheme and engaging in “an extensive web of deception.” It’s only Tuesday, but it’s already looking like one of the shakiest weeks for the crypto industry since last year’s dramatic FTX meltdown. Binance saw hundreds of millions of dollars drain from its exchange in response; Coinbase’s stock plunged 15% after news of the suit broke.
SEC lawyers allege Coinbase have made off with billions of dollars since 2019 by facilitating the buying and selling of crypto assets, which the agency describes as securities. In total, the SEC claims Coinbase made at least 13 “crypto asset securities” available to its customers. Those cryptocurrencies include Solana Labs’ SOL native coin, the Cardano blockchain’s ADA coin, and the Polygon blockchain’s MATIC coin, among others.
By refusing to register with the SEC, the agency alleges Coinbase deprived its users of critical protection like regulatory inspections, recordkeeping requirements, and safeguards preventing conflicts of interest. Coinbase, the SEC alleges in the complaint, has for years blatantly “defied the regulatory structures and evaded the disclosure requirements.”
“You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones,” SEC’s Division of Enforcement Director Gurbir S. Grewal said. “The consequences for the investing public are far too great.”
The SEC also took aim at Coinbase’s savings-account-esque staking-as-as-service program, which the regulatory agency similarly described as an investment contract and unregistered security. That staking program included five stackable crypto assets the SEC described as securities. The SEC said it believes Coinbase should be “permanently restrained and enjoined” from operating the product. Coinbase saw its stock price plummet following the news.
Coinbase shot back at the SEC in a statement sent to Gizmodo. Paul Grewal, the company’s Chief Legal Officer and General Counsel, said the agency’s reliance on a “enforcement-only approach in the absence of clear rules” is hurting competitiveness in the industry.
“The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation,” Grewal said. “In the meantime, we’ll continue to operate our business as usual.”
Coinbase now plunging ~16% $COIN pic.twitter.com/Hs1z6uZFwX
— Joe Weisenthal (@TheStalwart) June 6, 2023
Second major crypto lawsuit in two days
The Coinbase lawsuit marks the second SEC complaint filed against a major cryptocurrency firm in as many days. On Monday, the federal regulator hit Coinbase competitor Binance, the largest crypto exchange in the world, with 13 charges. Like Coinbase, Binance was also accused of operating as an unregistered exchange, broker-dealer, and clearing agency. The SEC adopted a more aggressive posture against Binance, though, accusing the company and its CEO Changpeng Zhao of engaging in an “expansive web of deception” to sidestep regulators over the years.
“This case arises from Defendants’ blatant disregard of the federal securities laws and the investor and market protections these laws provide,” the complaint reads. “In so doing, Defendants have enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk.”
The SEC charges are already sending shockwaves through the stock market, and cryptocurrency holders. On Tuesday, just one day after the Binance suit, investors had reportedly rushed to pull out $US778.6 ($1,081) million worth of crypto tokens from the exchange. Binance did not immediately respond to Gizmodo’s request for comment.
Netflow to Binance over the past 24 hours is $778.6M negative on Ethereum – $871.7M in and $1.65B out
Over the past hour, netflow on Ethereum continues to be negative at $35.7M on Ethereum – $14.8M in and $50.5M out
Track it here https://t.co/nwTgpXWhZY and filter for “Binance” pic.twitter.com/jnNAN0QKVy
— Nansen 🧭 (@nansen_ai) June 6, 2023