In a significant move that sent shockwaves through the cryptocurrency industry, the U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Coinbase, Inc., accusing the popular crypto asset trading platform of operating as an unregistered national securities exchange, broker, and clearing agency. The SEC’s complaint also includes charges against Coinbase for failing to register its crypto asset staking-as-a-service program.
SEC Turns Focus to Coinbase
The SEC alleges that Coinbase has been unlawfully facilitating the buying and selling of crypto asset securities, generating billions of dollars since at least 2019. The complaint asserts that Coinbase has effectively merged the functions of an exchange, broker, and clearing agency without obtaining the necessary registration from the Commission, as required by law.
Specifically, Coinbase is accused of providing a marketplace that brings together buyers and sellers of securities, executing securities transactions for its customers, and offering settlement and depository services for crypto asset securities. By failing to register, Coinbase has deprived investors of vital protections mandated by the SEC. These include oversight by the regulatory authority, adherence to recordkeeping requirements, and safeguards against conflicts of interest.
The complaint further alleges that Coinbase Global Inc. (CGI), the holding company of Coinbase, is a control person and is also liable for certain violations committed by Coinbase. The SEC’s lawsuit also targets Coinbase’s staking-as-a-service program, which has been in operation since 2019. This program enables customers to earn profits through the “proof of stake” mechanisms of select blockchains and Coinbase’s involvement.
The SEC claims that Coinbase conducted an unregistered securities offering through this staking program. Under the program, Coinbase pools customers’ stakeable crypto assets, engages in blockchain transaction validation services, and distributes a portion of the rewards to customers whose assets were part of the pool. Coinbase failed to register these offers and sales as required by law.
The lawsuit against Coinbase comes on the heels of another high-profile case where the SEC sued Binance, one of the world’s largest cryptocurrency exchanges, and its CEO, Changpeng “CZ” Zhao, for alleged violations of federal securities laws. These recent actions by the SEC demonstrate a concerted effort to enforce regulatory compliance in the rapidly evolving cryptocurrency landscape.
