- tech360.tv
US SEC Sues Coinbase, Largest US Crypto Platform, for Illegal Operations
Updated: Jan 4
[Edited] In a dramatic escalation of its crackdown on the cryptocurrency industry, the top U.S. securities regulator has filed lawsuits against major crypto exchanges Coinbase and Binance.
The U.S. Securities and Exchange Commission (SEC) accuses Coinbase of evading disclosure requirements and operating as a middleman on crypto transactions.
Meanwhile, the SEC accuses Binance and its CEO Changpeng Zhao of operating a "web of deception." These lawsuits could potentially transform the crypto market by asserting the SEC's jurisdiction over the industry.
Kevin O'Brien, a partner at Ford O'Brien Landy and a former federal prosecutor, commented on the lawsuits, stating, "The two cases are different, but overlap and point in the same direction: the SEC's increasingly aggressive campaign to bring cryptocurrencies under the jurisdiction of the federal securities laws." He also noted that if the SEC prevails, it could transform the cryptocurrency industry.
The SEC's complaint against Coinbase alleges that the platform has made billions of dollars by operating as a middleman on crypto transactions since at least 2019, while evading disclosure requirements meant to protect investors. The SEC claims that Coinbase traded at least 13 crypto assets that should have been registered as securities.
Following the lawsuit, Coinbase experienced approximately $1.28 billion of net customer outflows, according to initial estimates from data firm Nansen. Shares of Coinbase's parent company, Coinbase Global Inc, closed down 12.1% at $51.61. However, they are still up 46% this year. Paul Grewal, Coinbase's general counsel, stated that the company will continue operating as usual and has demonstrated a commitment to compliance.
The SEC's actions against crypto exchanges are part of its broader efforts to assert its authority over the crypto market. SEC Chair Gary Gensler has consistently maintained that tokens constitute securities. The SEC has focused on the sale of tokens and interest-bearing crypto products, as well as unregistered crypto broker-dealers and exchange trading and clearing activity.
While some crypto companies argue that tokens do not meet the definition of securities and that the SEC is overstepping its authority, many companies have responded to the crackdown by boosting compliance, shelving products, and expanding outside the United States. Kristin Smith, CEO of the Blockchain Association trade group, rejected Gensler's efforts to oversee the industry and expressed confidence that the courts will prove him wrong.
Coinbase, founded in 2012, serves over 108 million customers and ended March with $130 billion of customer crypto assets and funds on its balance sheet. Transactions generated 75% of its $3.15 billion of net revenue last year. The SEC's lawsuit against Coinbase seeks civil fines, the recouping of ill-gotten gains, and injunctive relief.
In the case of Binance, the SEC accused the exchange of inflating trading volumes, diverting customer funds, improperly commingling assets, failing to restrict U.S. customers, and misleading customers about its controls. Binance has pledged to vigorously defend itself against the lawsuit, stating that it reflects the SEC's "misguided and conscious refusal" to provide clarity to the crypto industry. Following the lawsuit, customers pulled around $790 million from Binance and its U.S. affiliate.
As regulatory actions continue, Joshua Chu, Group Chief Risk Officer at blockchain technology firms XBE, Coinllectibles, and Marvion, emphasized that the goal is to ensure compliance with securities laws and protect investors. He believes that these events will ultimately lead to a more stable and trustworthy industry, attracting more institutional investors and mainstream adoption.
The SEC has filed lawsuits against Coinbase and Binance, accusing them of various violations.
The lawsuits could transform the crypto market by asserting the SEC's jurisdiction.
Coinbase has faced significant customer outflows and a drop in share price.
The SEC's actions are part of its broader efforts to regulate the crypto industry.
Source: REUTERS