Coinbase stock drops 20% as SEC intensifies crypto crackdown
The US Securities and Exchange Commission (SEC) is suing America’s largest crypto exchange, Coinbase, claiming that the listed company broke securities law by acting as an unregistered broker.
This legal action comes just a day after Wall Street’s top regulator sued Binance, the world’s largest cryptocurrency exchange, for alleged misconduct related to customer funds and misleading US regulators about its activities.
“By first going after Binance and then Coinbase in rapid succession, the SEC is sending a clear message to businesses operating in crypto, both foreign and homegrown, “You are not welcome in the US,” said Bradley Duke, Founder and Co-CEO at crypto ETP provider ETC Group.
According to the compliant, Coinbase’s prime brokerage, exchange, and staking programs have been violating securities laws. The regulator detailed that the exchange has disregarded regulatory frameworks and evaded disclosure requirements mandated by U.S. securities law for a couple of years.
The complaint, which was filed in a Manhattan federal court, claims that at least 13 crypto assets offered by Coinbase, including Solana’s SOL, fall under the category of “crypto asset securities” as defined by the regulator.
“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,” the SEC alleged in the complaint.
In Tuesday’s filing, the SEC further claims that Coinbase operated as an unregistered exchange despite the risks associated with its operations and that some of the products traded on its platform might be classified as securities.
Coinbase, during its public offering, disclosed the regulatory risks and the possibility that some of its products might fall under the regulatory oversight. However, the SEC said that Coinbase continued to operate without fulfilling the necessary registration requirements as an exchange. Overall, this discrepancy between Coinbase’s public statements and its alleged non-compliance with registration regulations forms a key aspect of the SEC’s case against the company.
Coinbase shares fell by 13% during Tuesday morning trading, following a 9% drop on Monday, which occurred after the SEC announced charges against overseas rival Binance and its founder Changpeng Zhao.
“These trading platforms, they call themselves exchanges, are commingling a number of functions. We don’t see the New York Stock Exchange operating a hedge fund,” Gensler continued,” SEC chair Gary Gensler said on CNBC.
Earlier in April, Coinbase CEO Brian Armstrong and its chief legal officer Paul Grewal released a joint video in response to the SEC’s Wells Notice. They claim that SEC staffers appear to rest on “superficial and incorrect analogies to products and services offered by others” to justify an enforcement action against Coinbase.
Armstrong said that at the time when Coinbase went public in 2021, they had detailed discussions with the SEC about their business that are now — two years later — the subject of the Wells notice.
Coinbase executives also pushed back against perceived overreach by the SEC, which has moved aggressively against the crypto industry since the collapse of FTX. The statement suggests that the SEC has changed its stance on Coinbase, despite a lack of regulatory developments. According to founder, the agency acknowledged in 2021 that it didn’t have the authority for enforcement actions against Coinbase, but seems to have changed its position since then.
“The SEC lawsuit against Coinbase, accusing the exchange of operating as an unregistered broker and exchange, adds another layer of complexity to the regulatory landscape for cryptocurrency platforms. With the charges coming just a day after the SEC’s action against Binance, it is evident that the regulatory crackdown on the crypto industry is intensifying,” said Mikkel Morch, Chairman and Non-Executive Director of crypto hedge fund ARK36.