SEC Sues Coinbase: Here’s What They Allege Coinbase Did Wrong

Coinbase is being sued by the SEC just a day after the SEC went after the world’s largest crypto exchange, Binance. 

The SEC alleges that Coinbase operated as an unregistered broker and sold unregistered securities — which are both allegations that have been directed toward Binance as well. 

The claims go back to 2019, despite the fact that Coinbase was allowed to go public in 2021.  

Here’s a list of the claims the SEC is making against Coinbase.  

Unregistered broker 

The SEC alleges that “since at least 2019, through the Coinbase Platform, Coinbase has operated as: an unregistered broker, including by soliciting potential investors, handling customer funds and assets, and charging transaction-based fees; an unregistered exchange, including by providing a market place that, among other things, brings together orders of multiple buyers and sellers of crypto assets and matches and executes those orders; and an unregistered clearing agency, including by holding its customers’ assets in Coinbase-controlled wallets and settling its customers’ transactions by debiting and crediting the relevant accounts.”

Unregistered “securities”

In the complaint, the SEC states that 13 crypto assets are “securities” including SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH and NEXO.

While there is some overlap between the allegations against Coinbase and those against Binance, some of these assets are newly-designated as securities by the SEC. It is unclear if the SEC has reached out to, or discussed, these designations with the token issuers.

The SEC targeted SOL, ADA, AXS, MATIC, FIL and SAND in its lawsuit against Binance.

Service targeted: Wallet, Staking and Prime 

The Staking program offered by Coinbase allows investors to stake five crypto assets – XTZ, ATOM, ETH, ADA and SOL. 

The SEC claims that this service means that Coinbase is offering the sale of unregistered securities and that “Coinbase has deprived investors of material information about Coinbase and its Staking Program offerings, including how Coinbase uses the offering proceeds and the risks and trends that affect the enterprise and an investment in these securities.”

“At all relevant times, the Coinbase Staking Program, as it applied to each of the five stakeable assets, was an investment contract under Howey, and therefore a security, whose offers and sales were subject to registration under the Securities Act,” the suit claims.

Coinbase Wallet is another service that the SEC alleges was selling unregistered securities. 

“Coinbase has carried out these functions despite the fact that the crypto assets it has Case made available for trading on the Coinbase Platform, Prime, and Wallet have included crypto asset securities, thus bringing Coinbase’s operations squarely within the purview of the securities laws. CGI—Coinbase’s parent company to which Coinbase’s revenues flow—is a control person of Coinbase and thus violated the same Exchange Act provisions as Coinbase,” the SEC claimed.

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