Key Takeaways

• The U.S. SEC sues Coinbase for a variety of violations, such as failing to register as a national securities exchange, broker and clearing agency, among others.
• Gensler stated that Coinbase also failed to provide proper investor protection and proper registration its staking-as-a-service program.

The United States Securities and Exchange Commission (SEC) has sued major cryptocurrency exchange Coinbase, alleging violations of national securities law, following its announcement of suing Binance a day earlier.
The charges were filed in the U.S. District Court for the Southern District of New York and allege that the crypto giant has been operating as an unregistered national securities exchange, broker and clearing agency, as well as failing to register its staking-as-a-service program, according to the SEC announcement.

Today we charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency and for failing to register the offer and sale of its crypto asset staking-as-a-service program.https://t.co/XPG2gDkxtV pic.twitter.com/hCdVMw8B2v

— U.S. Securities and Exchange Commission (@SECGov) June 6, 2023

Coinbase allegedly accrued billions in profits by facilitating the purchase and sale of crypto asset securities since 2019. Moreover, “Coinbase intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law,” according to the press release.

Coinbase is also accused of providing a marketplace for securities transactions, effecting transactions for customers’ accounts, and serving as an intermediary in the settlement of crypto asset securities transactions. Coinbase’s lack of registration has failed to protect investors and keep sound recordkeeping protocols, all while lacking measures to protect conflict of interest, according to the case file:

“Coinbase has for years defied the regulatory structures and evaded the disclosure requirements that Congress and the SEC have constructed for the protection of the national securities markets and investors.”

The complaint goes further to suggest that investors have been denied protections due to Coinbase’s failure to register, highlighting that Coinbase Global Inc., the holding company of Coinbase, is also on the hook for other violations.
Additionally, the SEC has charged Coinbase for not registering its crypto asset staking-as-a-service program, allegedly offering this unregistered securities service since 2019. The SEC stated that Coinbase operated a normal staking-as-a-service, proof-of-stake program, however:

“Coinbase failed to register its offers and sales of this staking program as required by law.”

SEC Chair Gary Gensler commented on the charges, emphasizing the importance of adhering to established securities laws. “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,” said Gensler.
If found guilty, Coinbase could face penalties financial penalties, including “injunctive relief and disgorgement of ill-gotten gains plus interest.” The official case docket reads:

“Unless Defendants are permanently restrained and enjoined, there is a reasonable likelihood that they will continue to engage in the acts, practices, transactions, and courses of business set forth in this Complaint.”