US SEC sues Coinbase a day after move against Binance

The US Securities and Exchange Commission (SEC) said Tuesday that it sued crypto exchange Coinbase, alleging that the platform operates as an unregistered security exchange. The announcement comes a day after the regulator filed a similar lawsuit against Binance, in a sign that the clampdown is extending to key players in the industry. 

SEC’s action against Coinbase led to a further sell-off of crypto assets across the board at a time when markets are still digesting news about Binance. Total market capitalization of cryptocurrencies is down 4.2% to $1.12 trillion, while Coinbase shares fell 17.74% premarket. 

SEC slams Coinbase with a lawsuit 

The financial regulator’s lawsuit against Coinbase comes at a time when the SEC has provided further clarity on the status of nearly a dozen cryptocurrencies. The US SEC considers these assets as securities and filed allegations against the crypto exchange Coinbase for unregistered sale of securities. 

In a press release, the SEC alleges that Coinbase has operated as an unregistered broker since at least 2019 and accused the crypto trading platform of soliciting potential investors, handling customer funds and assets, and charging transaction-based fees without obtaining the necessary registration.

The regulator highlights Coinbase’s failure to register its offerings and argues that this move deprived investors of significant protection, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, among others.

Coinbase said in a statement to FXStreet that the crypto sector needs legislation that allows fair rules and not litigation. "The SEC's reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance," Paul Grewal, Chief Legal Officer and General Counsel, said. The crypto exchange added that it will continue to operate its business as usual.

Multi-state task force targeted Coinbase

In its press release, the SEC thanked a multi-state task force of ten state securities regulators led by California that also includes Alabama, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin.

The combined action of law enforcement helped the SEC back its allegations against Coinbase and Coinbase Global Inc. (CGI). 

“Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said in the statement.

While Coinbase’s calculated decisions may have allowed it to earn billions, it’s done so at the expense of investors by depriving them of the protections to which they are entitled.

Bitcoin and Ethereum prices bleed in response to SEC’s move

The two largest cryptocurrencies in the crypto ecosystem witnessed a steep decline in prices, following the SEC’s legal tussle with cryptocurrency exchange platforms. Bitcoin price plummeted to $25,522, while Ethereum dropped close to its key level of $1,800 at the time of writing.

Bitcoin and Ethereum prices yielded nearly 5% and 3% losses for holders, respectively, since Monday. The total market capitalization of cryptocurrencies is down to $1.12 trillion after the financial regulator’s actions against the two largest crypto exchange platforms in the ecosystem.