US SEC charges Coinbase for operating as unregistered securities exchange

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

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

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. Those assets are used by platforms like Coinbase Global to guarantee other transactions taking place on the blockchain. Coinbase has been critical of regulations related to staking, calling them vague.

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.

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

The SEC, which had warned Coinbase in March that it could face securities charges, says in its complaint that Coinbase has made billions of dollars unlawfully since at least 2019 by facilitating the buying and selling of crypto asset securities. The agency claims Coinbase intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the commission, as required by law.

“While Coinbase’s calculated decisions may have allowed it to earn billions, it’s 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, Gurbir Grewal, director of the SEC’s Division of Enforcement, said in a statement on Tuesday.

Coinbase did not immediately respond to a request for comment.

The SEC’s complaint was filed in U.S. District Court for the Southern District of New York. It seeks injunctive relief, disgorgement of ill-gotten gains plus interest, penalties, and other equitable relief.

The announcement comes one day after the SEC filed a lawsuit against Binance and its founder Changpeng Zhao, accusing them misusing investor funds, operating as an unregistered exchange and violating a slew of U.S. securities laws.

In a social media post, Binance said that it has been cooperating with the SEC’s investigation but said that the agency chose to act unilaterally and litigate.

Binance, the world’s largest cryptocurrency exchange, is a Cayman Islands limited liability company founded by Zhao, and the charges are familiar to practices uncovered after the collapse of the second largest cryptocurrency exchange, FTX, last year.

U.S. prosecutors and the SEC charged FTX’s founder Sam Bankman-Fried with a host of money laundering, fraud and securities fraud charges in December. His criminal trial is likely to be in the fall.