The United States Securities and Exchange Commission (SEC) continues its aggressive stance on crypto enforcement actions in 2023. Following its recent action against Binance, the agency has now set its sights on Coinbase, the largest cryptocurrency exchange in the U.S.
In its latest lawsuit, the SEC not only accuses Coinbase of operating unregistered securities trading platforms, a recurring charge against crypto exchanges, but also raises concerns about its operating structure, despite approving its initial public offering two years ago.
According to a court filing dated June 6, the SEC alleges that since 2019, Coinbase has been running an unregistered securities exchange, broker, and clearing agency. The regulator also takes issue with Coinbase’s staking program, crypto wallet service, and Coinbase Prime product, claiming they violate U.S. securities laws.
Of particular concern to the SEC is Coinbase’s consolidation of the roles of an exchange, broker, and clearing agency into a single platform, which, according to the agency, goes against the traditional separation of these roles designed to protect customers from conflicts of interest.
The SEC argues that Coinbase, by failing to register with the agency for any of the three functions and not qualifying for any exemptions, has evaded regulatory structures and disclosure requirements meant to safeguard national securities markets and investors.
The lawsuit also highlights that while Coinbase refused to register with the SEC, it offered crypto asset securities for trading to generate revenue. The SEC identifies several crypto assets, including SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO, as potentially falling under the category of investment contracts under federal securities laws.
Coinbase had been warned of the lawsuit in March, and the legal action comes two years after the SEC approved the exchange’s initial public offering. Coinbase has expressed its intent to defend itself in court while simultaneously increasing its efforts in crypto advocacy. Additionally, the exchange has taken the SEC to court over a petition filed in July 2022 seeking clarity on the agency’s classification of crypto securities.
