SEC Sues US-Based Crypto Exchange Coinbase

Coinbase shares fell sharply in early Tuesday trading after the largest U.S. cryptocurrency exchange was sued by the Securities and Exchange Commission (SEC) in the U.S. District Court for the Southern District of New York on Tuesday. The stock was trading at $47.91, down 17% ahead of Tuesday’s market open.

Coinbase ‘Deliberately’ Refused to Adhere to US Securities Laws

SEC charged crypto exchange Coinbase for “failing to register the offer and sale of its crypto asset staking-as-a-service program,” sending the company’s shares tumbling more than 17% in premarket trading. The action comes less than a day after the regulator filed multiple charges against Binance and its founder. According to the complaint, Coinbase is accused of making profits in billions of dollars by “unlawfully facilitating the buying and selling of crypto asset securities.”

The regulator alleges that the San Francisco-based crypto exchange operates three functions: exchange, broker-dealer, and clearinghouse. The SEC said these three functions are separated in other parts of the market.

“Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC.”

– said SEC Chair Gary Gensler.

The regulator also said that Coinbase was completely aware of the applicability of the federal securities regulations to its business operations but had “deliberately refused to follow them.”

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SEC’s Lawsuit Against Binance

The move follows the SEC’s striking lawsuit against Binance and its founder Changpeng “CZ” Zhao, suing both for several wrongdoings such as commingling of users’ funds and unsuccessfully preventing US-based customers from trading on its international digital assets exchange.

The litigation triggered considerable outflows from Binance, totaling $719 million over the 24 hours, according to blockchain analytics platform Nansen. At the same time, net withdrawals from the leading exchange hit $230 million after the SEC published its complaint.

While the SEC’s actions caught many crypto investors off guard, it should not be a surprise, given that the securities regulator has been cracking down on the industry for several months. Earlier this year, the agency charged digital assets exchange Kraken with similar charges, forcing the company to terminate its staking service for US customers and pay $30 million in disgorgement.

Editorial Update (6th June 2023, 9:19 AM EST): The article was updated to provide additional information and context.

How do you think the 2 back-to-back lawsuits against crypto exchanges will impact the broader crypto market in the coming weeks? Let us know in the comments below.