In a landmark case for the crypto industry, the U.S. Securities and Exchange Commission (SEC) has lodged a complaint against leading crypto exchange Coinbase, accusing it of operating as an unregistered securities exchange, broker, and clearing agency. The SEC has also charged Coinbase for the unregistered offer and sale of securities related to its staking-as-a-service program.
The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, alleges that since 2019, Coinbase has unlawfully made billions of dollars from these activities. Coinbase is accused of intertwining the traditional functions of an exchange, broker, and clearing agency without registering these services with the SEC, as mandated by law.
The SEC alleges that Coinbase’s failure to register has significantly deprived investors of certain protections. These include routine SEC inspections, recordkeeping requirements, and protections against conflicts of interest, among others. The SEC’s complaint also implicates Coinbase’s holding company, Coinbase Global Inc. (CGI), for some of Coinbase’s violations.
Additionally, the SEC has alleged that Coinbase has been engaging in an unregistered securities offering through its staking-as-a-service program. Through this program, Coinbase allows customers to earn profits from the “proof of stake” mechanisms of specific blockchains and Coinbase’s efforts.
SEC Chair Gary Gensler stated, “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… Coinbase never registered its staking-as-a-service program as required by the securities laws, again depriving investors of critical disclosure and other protections.”
The SEC’s Division of Enforcement Director, Gurbir S. Grewal, added, “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.”
The SEC’s complaint seeks injunctive relief, disgorgement of ill-gotten gains plus interest, penalties, and other equitable relief.
The SEC’s investigation was led by a team from the Division of Enforcement’s Crypto Assets and Cyber Unit, with assistance from several regional offices. The SEC’s litigation will continue under the supervision of a dedicated team.
This landmark case marks a pivotal moment for the crypto industry, and its outcome could have far-reaching implications for the sector at large.