Coinbase, a crypto exchange based in New York, has been sued by the U.S. Securities and Exchange Commission (SEC) for offering unregistered securities.
Bypassing Disclosure Regulation
According to the SEC, Coinbase has never officially registered as a broker, a national stock exchange or a clearing house. This would simply allow them to circumvent the securities markets disclosure regime in the United States (US).
The SEC also alleged that they offered several tokens on their crypto platform, including Solana (SOL), Cardano (ADA), Polygon (MATIC) Filecoin (FIL), Sandbox, Axie Infinity, Chiliz (CHZ), FLOW, ICP, NEAR , VGX, DASH, and NEXO qualify as securities. The SEC confirmed the lawsuit via a Twitter message.
Coinbase’s staking program may also have an effect
According to the filed lawsuit, the U.S. Securities and Exchange Commission has alleged that Coinbase has been operating as an unregistered stockbroker since 2019, nearly 2 years ahead of its initial public offering (IPO) in April 2021.
Further, the lawsuit argued that Coinbase 5’s staking program includes stackable crypto assets, effectively making the program an investment contract and thus a security. Coinbase has already been in conflict with the SEC over the staking program and has claimed that their staking products should not be considered securities. In contrast, Kraken has settled with the SEC and shut down their staking services in the US.
Speaking about the recent lawsuit against Coinbase, SEC Chairman Gary Gensler noted that the crypto exchange has allegedly neglected essential safeguards for its customers, such as fraud and manipulation prevention, proper disclosure, and protection against conflicts of interest.
As a result of the lawsuit announcement, Coinbase’s share price has already fallen by around 20%.
Coinbase also faced a lawsuit from the SEC a day after the Securities and Exchange Commission (SEC) sued Binance for violating securities laws and acquiring funds from clients. Finally, while Binance was charged with 13 violations of various securities laws, the Coinbase indictment has surprised many in the crypto industry, especially given that Coinbase is a publicly traded company and they are known to be willing to cooperate with the (local government. It is not yet known what the next step will be exactly.