SEC Files Lawsuit Against Coinbase for Unregistered Crypto Broker Activity

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The United States Securities and Exchange Commission (SEC), the top regulator on Wall Street, has made another run on its regulatory crackdown. In the latest development, the federal regulator has charged against Coinbase, America’s largest cryptocurrency exchange. The SEC alleges that Coinbase has acted as an unregistered broker, evading the disclosure regime established by Congress for securities markets.

Today we charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency and for failing to register the offer and sale of its crypto asset staking-as-a-service program.

Coinbase Becomes Latest Victim Of SEC, After Binance

In a complaint filed on Tuesday in federal court, the SEC stated:

Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency.

According to the regulator, this made the exchange evade the disclosure regime that Congress has established for the securities markets. The complaint further alleges that Coinbase has collected significant revenues through transaction fees. This happened while they deprived investors of necessary disclosures and protections associated with registration, thereby exposing them to substantial risks.

Today we charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency and for failing to register the offer and sale of its crypto asset staking-as-a-service program.https://t.co/XPG2gDkxtV pic.twitter.com/hCdVMw8B2v

— U.S. Securities and Exchange Commission (@SECGov) June 6, 2023

The news has had a stark impact on Coinbase, with premarket trading shares of the cryptocurrency exchange tumbling a staggering 16%. This reflects the market’s concern over the potential consequences of the SEC’s allegations.

Notably, the lawsuit comes only 24 hours after the SEC filed a similar complaint against Binance, a prominent overseas competitor to Coinbase and the world’s largest cryptocurrency exchange. The regulatory action equally sent shockwaves through the industry. This resulted in significant repercussions for Binance, with investors withdrawing approximately $790 million from the platform. The same was witnessed in its US affiliate in response to the SEC charges. Binance witnessed net outflows of $778.6 million in crypto tokens on the Ethereum (ETH) blockchain, with its US counterpart, Binance.US, reporting net outflows of $13 million. Similarly, the native token for the Binance ecosystem, Binance Coin (BNB), slumped 10% as reported.

TODAY I LOST A 1 WHOLE LAMBO

THANKS TO BINANCE FUD

I FEEL PROTECTED NOW pic.twitter.com/pf5ebcYEfv

— Ash Crypto (@Ashcryptoreal) June 6, 2023

Crypto Regulation Intensifies

The SEC’s moves against Coinbase and Binance, two of the biggest exchanges globally, demonstrate its determination to enforce securities laws in the rapidly evolving digital asset space. The regulatory crackdown aims to ensure market participants adhere to the regulations in place. It is also geared toward providing investors with the required disclosures and protections.

As the news broke, market analysts predicted that the SEC’s actions would substantially impact the cryptocurrency market. The lawsuits against two leading exchanges may prompt other regulators to increase their scrutiny and oversight of the digital asset industry. Consequently, investors and market participants are advised to closely monitor regulatory developments and adapt their strategies accordingly.

While the outcomes of the lawsuits remain uncertain, the SEC’s legal actions against Coinbase and Binance mark a significant milestone in the regulatory landscape surrounding cryptocurrencies. The cases will serve as key indicators of how regulators approach and enforce securities laws in this emerging sector, potentially shaping the future of the digital asset industry.

Ten US States Issue Show Cause Notice Against Coinbase

Following charges issued against the US-based exchange by the federal regulator, ten states across America have issued a show cause notice against Coinbase. Specifically, a task force of US states has banded together to issue the notice to the exchange. The Alabama Securities Commission issued the document, granting the company 28 days to prove why it should not be issued a cease-and-desist order.

The ten states issuing the order to the company include Alabama, California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin. Additionally, the exchange is now at risk of receiving a cease-and-desist order for the sale of unregistered securities.

Notably, in March, the SEC issued Coinbase a Wells Notice regarding its alleged violation of federal securities law. Subsequently, that notice came to fruition, with the regulator charging the company with violations earlier today. Now, it appears as though state regulators are turning their attention to the company.

Notably, just like Binance’s stock slumped, Coinbase stock has dropped by 17% since the SEC lawsuit was filed.