- The U.S. SEC is not slowing down crypto enforcement efforts.
- The SEC has now filed a lawsuit against Coinbase a day after suing Binance.
- Aside from now repetitive charges, the SEC pokes holes at Coinbase’s operating structure.
The United States Securities and Exchange Commission’s barrage of crypto enforcement actions has shown no sign of abating in 2023. After launching enforcement action against Binance on Monday, June 5, the agency has struck again, this time going after Coinbase, the largest cryptocurrency exchange in the U.S.
In the latest case, aside from the repetitive charge against crypto exchanges for operating unregistered securities trading platforms, the SEC has also faulted Coinbase’s operating structure, despite approving its initial public offering two years prior.
SEC Sues Coinbase
In a court filing dated Tuesday, June 6, the SEC alleged that Coinbase had operated an unregistered securities exchange, broker, and clearing agency since 2019. The SEC also faults the crypto exchange for its staking program, crypto wallet service, and Coinbase Prime product which it claims violate U.S. securities laws.
The regulator notably took out time to poke holes at Coinbase’s operating structure which it claimed rolled an exchange, broker, and clearing agency into one. According to the agency, these roles are traditionally separated to protect customers from conflicts of interest that arise when these roles are merged.
"By collapsing these functions into a single platform and failing to register with the SEC as to any of the three functions, and not having qualified for any applicable exemptions from registration, Coinbase has for years defied the regulatory structures and evaded the disclosure requirements that Congress and the SEC have constructed for the protection of the national securities markets and investors," the SEC added.
The market regulator contends that while refusing to register with the SEC, Coinbase made so-called crypto asset securities available for trading to boost revenue. Crypto asset securities identified by the SEC include SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO.
"... while paying lip service to its desire to comply with applicable laws, Coinbase has for years made available for trading crypto assets that are investment contracts under the Howey test and well-established principles of the federal securities laws," the SEC argued.
The SEC had warned Coinbase of the lawsuit in March. The move comes about two years after the market regulator approved Coinbase’s initial public offering.
Following receiving the Wells notice in March, Coinbase has expressed its willingness to defend itself in court while also boosting crypto advocacy efforts in the U.S. The crypto exchange has also taken the SEC to court over a July 2022 petition seeking clarity on how the SEC classifies crypto securities.
On the Flipside
- Coinbase has claimed there is no path to registering with the SEC, citing failed months-long discussions with the regulator.
Why This Matters
In less than 24 hours, the SEC has gone after two of the world’s largest crypto exchanges. Coinbase, for one, is the largest crypto exchange in the U.S.
Read this to learn more about Coinbase’s Wells notice:
Learn about the broader effect of the SEC case against Binance on U.S.-based crypto exchanges: