The Securities and Exchange Commission (SEC) has filed a lawsuit against Coinbase, accusing the company of operating its cryptocurrency trading platform as an unregistered national securities exchange, broker, and clearing agency.
According to the SEC’s complaint, since at least 2019, Coinbase has generated billions of dollars unlawfully through the trading of crypto asset securities. The SEC claims that Coinbase combines the roles of an exchange, broker, and clearing agency without having registered any of these functions as mandated by law.
The lawsuit alleges that Coinbase’s failure to register has denied investors important protections, including oversight by the SEC, recordkeeping requirements, and safeguards against conflicts of interest. The SEC also criticized Coinbase for not registering its staking-as-a-service program, which is a requirement under securities laws.
“You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: the consequences for the investing public are far too great,” stated Gurbir S. Grewal, director of the SEC’s Division of Enforcement. “As alleged in our complaint, Coinbase was fully aware of the applicability of the federal securities laws to its business activities but deliberately chose not to comply. While Coinbase’s decisions may have allowed it to earn billions, it has done so at the expense of investors by depriving them of the protections to which they are entitled. Today’s action seeks to hold Coinbase accountable for its choices.”
In April, Coinbase initiated legal action against the SEC, asking a court to compel the regulator to respond to a petition regarding the “rules to govern the regulation” of digital assets. The company has also considered relocating its headquarters outside the US due to frustrations with the regulatory landscape.
The SEC’s complaint, which was filed in the US District Court for the Southern District of New York, seeks injunctive relief, recovery of ill-gotten gains along with interest, penalties, and other equitable relief.
This lawsuit is part of a broader crackdown by the SEC following the collapse of FTX. Recently, the SEC also took action against Binance and its CEO, Changpeng Zhao, for various securities law violations and alleged a widespread pattern of deception within the world’s largest cryptocurrency exchange.