The SEC has once again taken action against a major cryptocurrency exchange, this time charging Coinbase with violations of securities laws. Coinbase is accused of running an unregulated trading platform, acting as a broker, and operating without registering as a national securities exchange or clearing agency.
The SEC accused Coinbase of breaking the law by not registering their crypto asset staking-as-a-service program. No charges were made against Coinbase’s American founder and CEO Brian Armstrong.
Unlicensed Exchange, Brokerage Firm, and Clearing House
The Securities and Exchange Commission claims that Coinbase illegally made billions of dollars by helping people buy and sell digital assets without following the necessary laws. They say that Coinbase offered services like an exchange, broker, and clearing agency without registering with the Commission. This could explain why Coinbase was able to make so much money.
- Facilitates the trading of securities between multiple buyers and sellers using non-discretionary methods.
- Carries out transactions on behalf of Coinbase customers.
- Compares terms of settlement of crypto asset settlements.
- Serves as an intermediary in crypto asset transactions and a securities depository
Unregistered Sale of Securities through Staking-as-a-Service Program
The U.S. Securities and Exchange Commission claims that since 2019, Coinbase has been offering an unregistered service that lets customers earn profits from blockchain technology. Coinbase pools customers’ crypto assets, use them to validate blockchain transactions and then shares some of the rewards with the customers. According to the SEC, Coinbase hasn’t registered the sale of this service as required by law.
SEC Chair, Gary Gensler, said:
We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions. In other parts of our securities markets, these functions are separate. 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.
Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, said:
You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: the consequences for the investing public are far too great, As alleged in our complaint, Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them. While Coinbase’s calculated decisions may have allowed it to earn billions, it’s done so at the expense of investors by depriving them of the protections to which they are entitled. Today’s action seeks to hold Coinbase accountable for its choices.
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