The Securities and Exchange Commission (SEC) has targeted a large digital market segment. The agency is introducing a pair of lawsuits against crypto exchanges that account for half of global digital asset trading.
On Tuesday, SEC sued San Francisco-based crypto platform, Coinbase, alleging that it violated US securities regulations by failing to register as an exchange, clearing agency, or broker.
The financial regulator said that the exchange made billions of dollars by illegally facilitating the buy and sale of digital asset securities. Notably, the crypto firm traded at least 13 digital assets that are securities that should have been registered. Tokens such as Polygon, Cardano, and Solana are prominent in this list.
Meanwhile, Coinbase shares fell 17% following the news.
The SEC claimed that since at least 2019, Coinbase has operated as an unregistered broker through its prime brokerage, exchange platform, and crypto wallet service.
The enforcement action comes a day after the SEC sued the world’s largest crypto trading platform, Binance, and its chief executive Changpeng Zhao. The agency accused Binance of artificially inflating trading volume on the site, mishandling users’ funds, and taking steps to evade US regulation.
Director of the SEC’s division of enforcement, Gurbir S Grewal, said:
“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.”
He added that the exchange cannot ignore the rules even if they dislike it or prefer others. Meanwhile, Coinbase responded that the rules were unclear.
Coinbase’s chief legal officer, Paul Grewal, said:
“The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation.” He added, “In the meantime, we’ll continue to operate our business as usual.”
Meanwhile, Coinbase received the SEC’s Wells notice in March, warning of possible enforcement action. Even then, the exchange said it needed clear rules for its business.
On Tuesday, regulatory agencies from 10 states, including Alabama and California, filed lawsuits alleging that Coinbase is working as an unregistered securities dealer. Efforts to increase oversight gained momentum after last year’s failure of the well-known crypto firm FTX, which left many investors unable to access their assets.
Coinbase had more than 100 million users and $80bn in funds at the end of 2022.
The SEC orders Binance and Coinbase to disrupt certain aspects of their securities and platform operations, pay monetary penalties, and disgorge illegal profits.