SEC Charges Coinbase with Operating an Unregistered National Securities Exchange

Key Highlights :

1. The SEC is charging Coinbase with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency.

2. Coinbase was also charged for failing to register the offer and sale of its crypto asset staking-as-a-service program.

3. Users of trading platforms can stake their cryptocurrency, essentially locking up some of their assets, in exchange for payment later, much like earning interest rates in a savings account.

4. Those assets are used by platforms like Coinbase Global to guarantee other transactions taking place on the blockchain.

5. Coinbase has been critical of regulations related to staking, calling them vague.

6. The SEC complaint also alleges that Coinbase’s holding company, Coinbase Global Inc., is a control person of Coinbase and therefore is also liable for some of Coinbase’s violations.

7. Shares of Coinbase Global tumbled nearly 17% before the market open on Tuesday.

     The Securities and Exchange Commission (SEC) has charged Coinbase, one of the world's largest cryptocurrency exchanges, with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency. According to the SEC, Coinbase has been operating without registering any of the functions with the commission, as required by law. The SEC's complaint also alleges that Coinbase’s holding company, Coinbase Global Inc., is a control person of Coinbase and therefore is also liable for some of Coinbase’s violations.

     Coinbase has been critical of regulations related to its crypto asset staking-as-a-service program, claiming that they are too vague. The SEC complaint alleges that Coinbase has made billions of dollars unlawfully since at least 2019 by facilitating the buying and selling of crypto asset securities without registering with the SEC. Coinbase has been intertwining the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the commission, as required by law.

     The SEC is seeking injunctive relief, disgorgement of ill-gotten gains plus interest, penalties, and other equitable relief. Shares of Coinbase Global tumbled nearly 17% before the market open on Tuesday following the announcement. Gurbir Grewal, director of the SEC’s Division of Enforcement, said in a statement that Coinbase's choices have deprived investors of the protections to which they are entitled.

     The SEC's announcement comes one day after the agency filed a lawsuit against Binance and its founder Changpeng Zhao, accusing them of misusing investor funds, operating as an unregistered exchange and violating a slew of U.S. securities laws. Binance is the world’s largest cryptocurrency exchange, a Cayman Islands limited liability company founded by Zhao. Last year, the second largest cryptocurrency exchange, FTX, collapsed and U.S. prosecutors and the SEC charged its founder Sam Bankman-Fried with a host of money laundering, fraud and securities fraud charges. His criminal trial is likely to be in the fall.

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