The Securities and Exchange Commission (SEC) has filed a lawsuit against cryptocurrency exchange Coinbase, alleging that the company has been operating as an unregistered broker and exchange. The SEC is seeking a permanent halt to these activities. Following the news of the lawsuit, Coinbase’s shares fell 12% on Tuesday, on top of a 9% drop the previous day due to charges against rival exchange Binance.
SEC Chair Gary Gensler has expressed concerns about crypto trading platforms, referring to them as exchanges that perform multiple functions. He highlighted that traditional stock exchanges do not engage in hedge fund operations. The SEC’s complaint states that Coinbase’s prime brokerage, exchange, and staking programs violate securities laws, accusing the company of evading disclosure requirements and regulatory structures in the US.
The SEC claims that at least 13 crypto assets offered on Coinbase are considered “crypto asset securities.” These assets include tokens like SOL, Cardano’s ADA, and Filecoin’s FIL. Coinbase’s chief legal officer, Paul Grewal, responded by emphasizing the need for transparent and fair legislation for the digital asset industry, rather than relying solely on enforcement actions.
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The SEC’s complaint asserts that several of Coinbase’s services, including its institutional service, retail exchange, self-custody wallet service, and staking program, involve one or more crypto asset securities. The staking program, characterized as an investment contract, is deemed an unregistered security. Coinbase is likely to challenge this assessment, as the company believes these assets should not be classified as securities under its interpretation of the law.
Coinbase, known for its regulated and secure reputation, has faced criticism from the SEC, which points to the company’s marketing and sales efforts as evidence of solicitation. The SEC considers solicitation as a factor in determining whether a company operates as a broker or exchange. The SEC also relies on the Howey test to determine if an asset qualifies as an investment contract and, therefore, a security.
Coinbase, with its significant financial and institutional resources, is expected to contest the SEC’s claims. The company has been preparing for potential legal action and has engaged in public disputes with the regulator, advocating for clear regulatory frameworks for the digital asset industry.
Source – businessoutreach
