The Securities and Exchange Commission (SEC) has launched a lawsuit against the cryptocurrency trading platform, Coinbase, accusing it of operating without appropriate registration. The lawsuit, which follows similar action against Binance, has triggered a significant 13% drop in Coinbase’s stock. The SEC claims 13 cryptocurrencies listed on Coinbase should be regulated as securities, demanding the company cease these operations.
The US financial watchdog, the Securities and Exchange Commission (SEC), is taking legal action against cryptocurrency trading platform Coinbase. The SEC has accused Coinbase of operating without proper registration and wants to stop them from doing so.
Coinbase’s stock value dropped 13% on Tuesday after the news came out. Its stock was already down by 9% on Monday, after similar charges were made against another cryptocurrency trading platform, Binance.
The SEC is saying that these cryptocurrency trading platforms are doing too many different things. Gary Gensler, the head of the SEC, compared it to the New York Stock Exchange running a hedge fund, which it doesn’t do.
The SEC claims that Coinbase has been breaking laws related to trading stocks for a long time by not following rules and not providing the right information. The SEC believes that 13 types of cryptocurrencies offered by Coinbase should be treated like stocks.
Gensler further said that Coinbase had not followed the law when offering exchange, broker-dealer, and clearinghouse functions. Coinbase’s legal officer, Paul Grewal, disagreed and said that the SEC should make clearer rules for the cryptocurrency industry instead of just suing companies. He believes the current approach is damaging to US businesses and competitiveness.
SEC’s complaint against Coinbase
The SEC’s complaint includes three services provided by Coinbase: Prime, its main retail exchange product, and its self-custody Wallet service. They all offer at least one cryptocurrency that the SEC considers a security.
The SEC has also said that Coinbase’s staking program, which allows users to earn returns on their cryptocurrencies, is like an unregistered security. A similar program at another exchange, Kraken, was already forced to close by the SEC.
Earlier this year, Coinbase was warned by the SEC that it might face legal action. In response, Coinbase has been fighting back publicly and preparing for a legal battle with advertising campaigns.
Many people in the cryptocurrency community believe that Coinbase is the only company with enough resources to stand up to the SEC. Coinbase has promoted itself as a safer, regulated option compared to other exchanges. However, the SEC is using this promotion as part of its case against Coinbase, saying that Coinbase is encouraging new investors to join, which is part of how the SEC decides if a company is acting like a broker or an exchange.
Finally, the SEC uses a test called the Howey test to decide if something is a security. If it involves investing money, expecting to get a return, and the return comes from the work of others, then it’s considered a security according to the Howey test.
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