SEC Continues Crypto Crackdown: Sues Coinbase for Offering Securities

SEC: Coinbase Failed to Register Properly

The SEC has long argued that crypto exchanges offer securities and should be under the purview of the organization.

The suite breaks it down by claiming that Coinbase has operated as a broker, exchange and clearing house for customers. According to the SEC those services were “commingled”:

“The Coinbase Platform merges three functions that are typically separated in traditional securities markets – those of brokers, exchanges, and clearing agencies,” the SEC suit said. “Yet, Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency, thus evading the disclosure regime that Congress has established for our securities markets.”

SEC Chair Gary Gensler would go on to say that Coinbase’s alleged failures deprive customers of critical protections.

As expected the SEC also took issue with Coinbase’s staking products. That is perhaps the least surprising part of the suit considering the SEC issued a Wells Notice to Coinbase in regards to staking earlier this year.

Also, it was notably that the SEC did not accuse Coinbase of commingling customer funds as it did with Binance yesterday.

Coinbase: “We’re Proud to Represent Our Industry in Court”

There is one major problem for SEC with its case against Coinbase: It reviewed the company and allowed it to become public in 2021.

Coinbase CEO Brian Armstrong noted this in an immediate response to the suit on Twitter:

“Regarding the SEC complaint against us today, we’re proud to represent the industry in court to finally get some clarity around crypto rules.

Remember:

1. The SEC reviewed our business and allowed us to become a public company in 2021.
2. There is no path to “come in and register” – we tried, repeatedly – so we don’t list securities. We reject the vast majority of assets we review.
3. The SEC and CFTC have made conflicting statements, and don’t even agree on what is a security and what is a commodity.
4. This is why the US congress is introducing new legislation to fix the situation, and the rest of the world is moving to put clear rules in place to support this technology.

Instead of publishing a clear rule book, the SEC has taken a regulation by enforcement approach that is harming America. So if we need to avail ourselves of the courts to get clarity, so be it.

Btw, in case it’s not obvious, the Coinbase suit is very different from others out there – the complaint filed against us is exclusively focused on what is or is not a security.  And we are confident in our facts and the law.

We’ll get the job done. In the meantime, let’s all keep moving forward and building as an industry. America will get this right in the end.”

Coinbase also released a short video that pointed out some of the other inconsistencies with the SEC’s actions: