SEC sues Coinbase for violation of securities laws

The lawsuit comes a day after regulators took action against Binance, the world’s largest exchange. According to SEC, Coinbase operates a non-registered securities exchange, broker, and clearing agency.

Related: SEC sues CZ and Binance for multiple securities violations

SEC filed a lawsuit against Coinbase but didn’t mention the exchange’s CEO, Brian Armstrong, or any other executive as guilty of violating securities laws, unlike the agency did with Binance CEO Changpeng Zhao.

The Coinbase Platform merges three functions that are typically separated in traditional securities markets – those of brokers, exchanges, and clearing agencies. Yet, Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency, thus evading the disclosure regime that Congress has established for our securities markets.

SEC chair Gary Gensler said in a press release:

We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions… Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC. Further, as we allege, Coinbase never registered its staking-as-a-service program as required by the securities laws, again depriving investors of critical disclosure and other protections.”

Furthermore, SEC says Coinbase offers unregistered securities, namely Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), The Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), Flow (FLOW), Internet Computer (ICP), Near (NEAR), Voyager Token (VGX), Dash (DASH), and Nexo (NEXO).

As follows, SEC also names Coinbase Prime, Wallet, and staking products as areas where federal securities laws were violated.

In response to the lawsuit, Brian Armstrong, Coinbase’s CEO, tweeted that they’re “confident in our facts and the law”:

Regarding the SEC complaint against us today, we're proud to represent the industry in court to finally get some clarity around crypto rules.

Remember:
1. The SEC reviewed our business and allowed us to become a public company in 2021.
2. There is no path to "come in and…

— Brian Armstrong (@brian_armstrong) June 6, 2023

He added again that SEC failed to provide a clear rule book for the cryptocurrency sector, and “if we need to avail ourselves of the courts to get clarity, so be it.”

Related: Coinbase continues to seek response from SEC on rulemaking

The entire crypto market and Coinbase’s premarket stock price fell on this news. Shares of Coinbase took a sharp dip, plunging as much as 20% at market open, as reported by TradingView. The shares managed to recover partially from the initial drop but were still trading down 15% at $47.10.