SEC sues Coinbase, claiming that the latter’s actions have exposed investors to significant risk by depriving them of the necessary disclosures and protections from registration. According to SEC, Coinbase traded at least 13 crypto assets that are securities that should have been registered, including tokens such as Solana, Cardano, and Polygon.
According to the SEC, Coinbase unlawfully facilitated buying and selling crypto asset securities, making the company billions of dollars. The SEC’s allegations focus on the failure of Coinbase to register as a securities exchange venue. By failing to comply with registration requirements, Coinbase is said to have exposed investors to potential risks associated with trading digital currencies.
In addition to the SEC’s lawsuit, financial regulators from ten states, including California and Alabama, also filed legal actions against Coinbase. It further intensifies the scrutiny of the company. The regulators allege that Coinbase was operating without the required registrations as a securities dealer.
Coinbase, founded in 2012, has a large customer base and handles significant daily trading volumes of cryptocurrencies like Bitcoin. When it went public in 2021, it reached a market value of nearly $100 billion. However, the recent decline in crypto values has led to a significant decrease in Coinbase’s worth, which is now less than $12 billion.
Initial estimates from data firm Nansen suggest that Coinbase experienced net customer outflows of approximately $1.28 billion in the aftermath of the lawsuit. The shares of Coinbase’s parent company, Coinbase Global Inc, closed down $7.10 or 12.1%, settling at $51.61. The shares had dropped by as much as 20.9% at their lowest point. Despite the recent decline, Coinbase’s shares have still recorded a 46% increase since the beginning of this year.
The recent heightened inspection of the industry follows the collapse of FTX, a major cryptocurrency exchange, which resulted in customers losing access to their funds. The regulators’ objective is to prevent such incidents and protect the investing public by ensuring that crypto exchanges comply with existing rules and regulations.
Impact on the crypto market
The SEC’s lawsuit against Coinbase underscores the increasing scrutiny and regulatory pressure the cryptocurrency industry faces. As the largest cryptocurrency exchange in the United States by trading volume, Coinbase’s legal battle with the SEC has significant implications for the broader crypto market.
The outcome of this case could potentially shape the regulatory landscape for digital asset exchanges and impact investor protection measures in the cryptocurrency space.
Authorities are increasing their efforts to police the cryptocurrency industry, believing many crypto assets function similarly to regulated investments.
Kevin O’Brien, a partner at Ford O’Brien Landy and a former federal prosecutor, noted that these cases mark a significant step for the SEC, as they involve major players in the crypto industry.
He also clarifies further that the SEC’s legal actions against Coinbase and Binance reflect a growing trend of the agency’s more assertive approach towards regulating cryptocurrencies. While the cases differ in specifics, they share a common goal: to subject cryptocurrencies to the jurisdiction of federal securities laws.
Amidst these legal challenges, Coinbase’s chief legal officer, Paul Grewal, emphasized the need for fair and transparent legislation to govern the crypto industry. He expressed the company’s intention to continue operating its business as usual while advocating for clear regulatory frameworks.
On the other hand, Gurbir S Grewal, the director of the SEC’s division of enforcement, stated that Coinbase was fully aware of the federal securities laws but deliberately chose not to comply with them. The SEC argues that ignoring these rules can severely affect the investing public.