SEC Sues Coinbase for Allegedly Breaking US Securities Laws

Facts

• On Tuesday, the US Securities and Exchange Commission (SEC) sued Coinbase, the country's largest crypto exchange, for allegedly "operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency."¹
• In a lawsuit filed in the US District Court for the Southern District of New York, the SEC claimed that Coinbase earned billions of dollars by unlawfully providing a marketplace for securities and completing transactions for its customers since at least 2019.²
• Meanwhile, SEC chair Gary Genslera accused Coinbase of depriving investors of critical protections, including rulebooks that prevent fraud and manipulation, safeguards against conflicts of interest, and routine inspection by the federal agency.³
• The 101-page complaint comes one day after the SEC sued Binance, the world's largest cryptocurrency exchange, and its chief executive for allegedly violating security rules, mishandling customer funds, and misleading investors and regulators.⁴
• Coinbase, whose stock fell as much as 21% on Tuesday and 9% a day earlier, has been under investigation by the SEC for months, receiving a Wells notice from the agency in March suggesting that an enforcement action was imminent.⁵
• Also on Tuesday, the New Jersey Office of the Attorney General and the Division of Consumer Affairs announced that the Bureau of Securities had issued a summary cease and desist order against Coinbase, imposing a $5M fine for violations of the Securities Law.⁶

Sources: ¹SEC, ²Forbes, ³Verge, ⁴Bloomberg, ⁵Business Insider, and ⁶FOX News.

Narratives

• Pro-establishment narrative, as provided by Washington Post. US regulators have finally realized the risks the crypto ecosystem poses to financial stability and consumer protection, with the SEC filing lawsuits against Coinbase and Binance. This move will likely sweep away powerful offshore exchanges offering extremely risky derivatives bets with little oversight, to create a better, crypto-regulated environment.
• Establishment-critical narrative, as provided by Cointelegraph. The absence of fair, clear rules for the digital asset industry creates excessive red tape that dampens America's economic competitiveness. Given that the SEC allowed Coinbase to go public in 2021, it's hard to determine the grounds for this lawsuit. The federal agency should create a transparent and equitable, framework rather than relying on a reactive, litigious strategy of regulation.

Predictions