The new lawsuit against Coinbase comes just hours after the SEC sued Binance for violating the same US securities rules.
US publicly listed crypto-trading platform Coinbase Global Inc (NASDAQ:COIN) has once again fallen under the radar of the US Securities and Exchange Commission (SEC).
This time Coinbase was charged in federal court in New York earlier today for operating as an unregistered national securities exchange and brokerage according to the regulator. The lawsuit said Coinbase had operated in this manner since at least 2019, when it began performing crypto transactions.
Coinbase Prime and Coinbase Wallets were named as two products the company leveraged to attract investors.
The Coinbase self-custody wallet is known for helping investors access liquidity outside of the Coinbase platform and, according to a Twitter post by SEC Chairman Gary Gensler, it “deprives investors of protections.” essentials, including rules that prevent fraud and manipulation, appropriate disclosure, safeguards against conflicts of interest and routine inspection”.
Additionally, the regulator identified staking service Coinbase as an unregistered investment and securities contract, similar to the breach and charges against cryptocurrency exchange Kraken earlier in the year. Specifically, the staking service has been described as a way for investors to earn profits through Coinbase’s management efforts.
Therefore, the SEC is asking that the company be permanently hindered and prohibited from doing so in the future.
Coinbase and SEC remain at loggerheads
It’s worth noting that Coinbase and the SEC have been arguing for some time, especially when it comes to nascent industry regulation.
About two months ago, the US stock exchange received a Wells Notice from the regulator. According to the notice, the SEC claimed to have identified potential violations of US securities laws, therefore, it planned to apply measures to the exchange. Meanwhile, Coinbase clarified that none of its listed assets are securities.
Accordingly, Coinbase Chief Legal Officer Paul Grewal said:
“If necessary, we welcome a legal process to provide the clarity we advocate and to demonstrate that the Commission has simply not been fair or reasonable in its engagement on digital assets. Until then, it’s business as usual.”
The new lawsuit against Coinbase comes just hours after the same regulator sued leading digital asset servicing provider Binance for violating the same US securities rules. Binance has been accused of mismanaging customer funds and misleading investors and regulators. This is in addition to breaking Know-Your-Customer (KYC) rules by allowing Americans to trade on the platform after declaring they are unauthorized.
Much like Coinbase had done before, Binance called out the SEC for failing to provide clarity on crypto regulation. In response to the lawsuit, the major trading platform announced that it was ready to defend its position in court. However, the lawsuit had already caused damage to the crypto market, causing several digital assets to plummet.
Coinbase shares fell 9% following the news of the Binance-SEC lawsuit and now the newly filed lawsuit against Coinbase has dragged the stock down 13%.
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Benjamin Godfrey is a blockchain enthusiast and journalist who loves to write about real-world applications of blockchain technology and innovations to drive mainstream acceptance and global uptake of emerging technology. His desire to educate people about cryptocurrencies inspires his contributions to renowned blockchain-based media and sites. Benjamin Godfrey is a sports and agriculture enthusiast.
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