SEC Sues Coinbase Over Alleged Securities Law Violations

  • The U.S. securities regulator has alleged that Coinbase has been operating as an unregistered securities exchange, broker, and clearing agency since 2019.
  • The exchange pointed out that it had met with the SEC 30 times in 2022 seeking regulatory guidance, and that it will “vigorously defend” itself.
Coinbase CEO Brian Armstrong appears on stage at the 2014 TechCrunch Disrupt Europe/London

Coinbase CEO Brian Armstrong appears on stage at the 2014 TechCrunch Disrupt Europe/London, at The Old Billingsgate on October 21, 2014 in London, England. Anthony Harvey/Getty Images for TechCrunch

The U.S. Securities and Exchange Commission (SEC) has accused cryptocurrency exchange Coinbase of violating the law by offering unregistered securities on its platform, the regulator said in a press release on 6 June.

In its lawsuit, the securities regulator accused Coinbase of offerring several tokens on its platform that the SEC considered securities, including Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), The Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), Flow (FLOW), Internet Computer (ICP), Near (NEAR), Voyager (VGX), Das (DASH), and Nexo (NEXO). The regulator further claimed that the exchange operated as an unregistered broker, exchange, and clearing agency:

“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.”

The SEC claimed that the exchange violated federal securities laws in four areas of its business, the tokens it lists on the platform, Coinbase Prime, Coinbase Wallet, and its staking program. The lawsuit alleged that Coinbase has been operating as an unregistered security broker since 2019, which is almost two years before the company was allowed to go public through an initial public offering.

Hours after the SEC lawsuit, a task force of 10 U.S. state regulators also came after Coinbase, alleging the company had violated state securities laws through its staking program. An order published by the Alabama Securities Commission (ASC) has given the exchange 28 days to explain how it is not violating laws.

Coinbase CEO Brian Armstrong responded to the allegations via Twitter, saying that the company was “confident in our facts and the law”, and that this legal battle could finally provide “some clarity around crypto rules”. Coinbase also released a video called “By the numbers”, in which it pointed out it mentioned staking — an alleged securities violation in the lawsuit — close to 60 times in its report filed to the SEC before it was allowed to go public. The company also noted it had met with the regulator around 30 times in 2022 asking for guidance on its products.

This is the second lawsuit the SEC has filed against a crypto exchange this week, with the regulator taking legal actions against Binance, Binance.US, and CEO Changpeng “CZ” Zhao on Monday. Binance was charged with 13 counts of law violations, including failing to register as a clearing agency, broker, and an exchange, offering unregistered securities on the platform, commingling of funds, and more. The lawsuit against Coinbase on the other hand is focused primarily on what is or is not a security.

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