SEC Sues Coinbase, Accuses Crypto Platform of Violating Market Rules [Advance Cash ]

Sec Sues Coinbase, Accuses Crypto Platform Of Violating Market Rules

In an intensified effort to end what authorities see as an era of anarchy in the cryptocurrency market, the Securities and Exchange Commission on Tuesday sued Coinbase, the largest crypto trading platform in the states. States, saying the company broke the law by not registering. as a broker.

The SEC, the nation's top securities regulator, filed a lawsuit a day after accusing Binance, the world's largest cryptocurrency trading exchange, of mishandling customer funds and lying to U.S. regulators and investors about its operations.

With these federal actions against major crypto companies, as well as other state-level lawsuits, regulators have sought to reshape the crypto industry by treating digital asset exchanges like more traditional financial firms, while pushing back against individuals and companies they view as bad actors.

In its Tuesday filing, the SEC detailed how Coinbase executives had demonstrated that they knew how the marketing and sale of digital assets should be governed by US laws, even if they did not comply with them.

“Coinbase has elevated its interest in increasing profits over the interests of investors and compliance with the law and regulatory framework that governs securities markets and was created to protect investors and the U.S. capital markets,” says the folder.

Coinbase went public in April 2021, an event seen as a milestone in crypto's march into the mainstream. The company processed $830 billion in transactions last year, with nearly nine million users making at least one transaction per month.

The SEC said Coinbase made billions by facilitating the sale of crypto assets, but stripped investors of important protections. Its lawsuit, filed in Manhattan federal court, claims the company operated as an unregistered exchange, even though it told investors in public that regulators may consider some of the products traded on its platform to be securities.

Coinbase argued that its business model got tacit approval from the SEC when the agency approved its initial public offering. The company said it was willing to work with the SEC but disagreed with its position that all digital assets offered on its trading platform must be registered securities, which require stricter oversight.

This action is consistent with the SEC's long-standing view that most crypto products are no different from stocks, bonds, and other securities. This means that companies that operate as exchanges and provide a platform for trading and selling crypto products must be registered like any exchange or brokerage that facilitates the trading of stocks or bonds.

"You simply cannot ignore the rules because you don't like them or because you prefer others: the consequences for the investing public are far too great," Gurbir S. Grewal, director of the division of the SEC enforcement, said in a statement.

Crypto industry executives, who have reveled in challenging the rules and operating outside the heavily regulated confines of the traditional financial industry, have often argued that digital assets are different and that many rules relating to shares should not apply.

"The SEC's reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America's economic competitiveness," Coinbase chief legal officer Paul Grewal said in a statement. a statement about the lawsuit.

"The solution is legislation that allows fair rules for the road to be made transparently and applied equally, no litigation," added Mr Grewal, who is not related to the police officer. application of the SEC.

"The message here is that regulatory clarity already exists when it comes to exchanges and brokers," said John Reed Stark, former SEC attorney and regulatory consultant.

Adding to Coinbase's legal troubles, securities regulators in 10 states, including Alabama, California, Illinois and New Jersey, filed their own actions on Tuesday seeking to stop the company from selling unregistered securities. to investors in their states.

State regulators said Coinbase must first register to offer these products in their states. Some states, like New Jersey, imposed fines on the company.

The SEC's lawsuit and state regulators' actions against Coinbase have addressed a critical issue that many in the crypto industry have said Congress needs to address: whether digital asset products are securities or something totally different.

The SEC said the test for determining whether a crypto product should be treated as a security is derived from a 1946 Supreme Court case that led to what is known as the Howey test. SEC Chairman Gary Gensler has often said that this standard is clear and that no new law is needed to determine whether a digital asset is a security. The industry, however, begged to hold off.

The SEC complaint challenged Coinbase's claims that it fully complied with applicable securities laws before offering new digital products for trading, dismissing them as a "lip service."

According to the 101-page complaint, “Coinbase has for years made available for trading crypto assets that are investment contracts under the Howey well-established test and principles of federal securities laws.

The lawsuit, long awaited by Coinbase, comes as its executives and other crypto industry players hope to change the narrative of digital assets. Coinbase's Mr. Grewal testified before a House committee on Tuesday about a bill regulating crypto. Coinbase said it welcomes regulation and wants to cooperate with the SEC

The SEC lawsuit is the latest application in a multi-year crackdown on the crypto market by the regulator, which gained momentum after the collapse of cryptocurrency exchange FTX in November and criminal charges against its founder, Sam Bankman-Fried.

The lawsuit against Coinbase notably did not include an allegation of fraud, like the complaint against Binance, nor a request for a preliminary injunction against the company. On Monday, the SEC also sued Binance founder and CEO Changpeng Zhao. On Tuesday, he did not similarly sue Coinbase CEO Brian Armstrong.

The SEC took another step on Tuesday that differentiates its cases against Binance from those against Coinbase. In a new filing, the agency asked the court to freeze assets tied to US customers of Binance, which is headquartered outside the US, and return those assets to the US, arguing that a Quick freeze was necessary "given defendants' years of violent conduct, disregard for United States laws, evasion of regulatory oversight, and open questions about various financial transfers and the custody and control of client assets.

In the filing, the SEC also asked the court to cut off any access Binance and its senior executives may have to its US clients' assets. The filing contained a summary of bank account information related to Binance's US operations, which showed the company had multiple accounts at Axos Bank, a San Diego-based lender, as well as an account at the closed bank Silvergate.

Coinbase, unlike Binance, does not issue its own crypto tokens, and the company argued that its status as a publicly traded company ensured that it followed strict rules regarding its operations.

The company petitioned the SEC for new rules last summer and even sued the agency for failing to comply with its request in April.

The flurry of lawsuits against Coinbase and the crackdown on the crypto industry in general weighed on the company's share price. Coinbase shares have fallen around 20% in the past two days.