The United States has charged the country’s largest cryptocurrency trading platform with illegal activity, expanding its assault on the industry.
Coinbase, according to the Securities and Exchange Commission, acted without appropriate registration as a broker, exchange, and clearing agency for investments subject to SEC regulations.
This, according to the regulator, permitted the company to avoid oversight, including safeguards against conflicts of interest.
Coinbase stated that the regulations are unclear.
The solution, according to Paul Grewal, Coinbase’s chief legal officer, is legislation that enables fair road rules to be developed transparently and applied uniformly. “Litigation is not the answer,” he said. In the interim, we will continue to conduct business as usual.
The complaint against Coinbase comes a day after the SEC filed a lawsuit against Binance, the largest cryptocurrency trading platform in the world, accusing the company of mishandling customer funds, artificially exaggerating trading volume on the site, and evading US regulation.
Authorities have pledged to aggressively police the industry using existing regulations, arguing that many crypto assets function similarly to other investments that are subject to regulation.
After the tragic collapse of another big exchange, FTX, which left many users without funds, vigilance has grown.
Ten states’ financial regulators, including California and Alabama, sued Coinbase on Tuesday, alleging unregistered securities dealing.
“As alleged in our complaint, Coinbase was fully aware of the federal securities laws’ applicability to its business activities. But chose to disregard them,” said Gurbir S. Grewal, director of the SEC’s division of enforcement.
Disregarding the regulations because you don’t like them or prefer others has serious consequences for investors.
Coinbase, launched in 2012, boasts over 100 million customers and billions of dollars in daily Bitcoin transactions.
The corporation went public in 2021 with a market value of about $100 billion during the crypto mania.
Nonetheless, Coinbase’s stock price has declined significantly since the decline in cryptocurrency values last year. It is now less than $12 billion.
The company’s stock price fell after the lawsuit was launched in New York federal court.
Nansen, a crypto flow monitor, stated that clients withdrew roughly $1.3 billion from the platform after the lawsuit.
Coinbase had warned in March that the SEC might pursue legal action against the company. It said it had frequently tried to register with authorities, but there was no clear method for crypto companies. It has also threatened to relocate to London or elsewhere outside the United States.
Mr. Grewal stated on Tuesday, “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 demonstrated a commitment to compliance.”
The CEO of the Blockchain Association, an industry group, cited ongoing congressional discussions as evidence that the laws governing the industry remain in disarray and that the SEC had no case.
On the same day that the SEC filed suit against Coinbase, Mr. Grewal was scheduled to testify at a hearing in Washington, D.C., regarding the drafting of legislation to regulate certain categories of digital assets.
In prepared remarks for this hearing, Mr. Grewal stated that Coinbase thoroughly examined assets offered on its platform to determine whether they could be considered SEC-regulated securities. He stated that it did not identify securities and that the “vast majority” of proposals were rejected.
“The SEC does not make the law; it only makes accusations,” said Blockchain Association CEO Kristin Smith. “We’re confident the courts will prove [SEC chairman Gary] Gensler wrong in due time.”
