Coinbase Facing SEC Probe Over Offering Securities

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  • Coinbase is facing an SEC probe into the listing of securities on its platform, according to Bloomberg
  • The outlet claims that the exchange has been investigated on the matter over the past several weeks
  • Coinbase was recently caught up in an insider trading scandal which revealed more about the SEC’s treatment of crypto securities

Coinbase is facing a probe from the Securities and Exchange Commission (SEC) over suggestions it improperly let US citizens trade digital assets that should have been registered as securities, according to Bloomberg. They cite “three people familiar with the matter” who say that the SEC is investigating the exchange with more intensity following a glut of new tokens on the platform in recent years, although Coinbase has defended its token policy.

Coinbase’s Listing Glut Could be Problematic

Coinbase has massively expanded its token count in the last couple of years, with the platform famous for only listing four tokens as late as 2018. It now supports over 150 cryptocurrencies, some of which have raised eyebrows given their lack of credibility, and it seems that it is these less token types that may have got Coinbase into trouble.

Ironically, Coinbases’ Chief Legal Officer Paul Grewal touched on the matter on Twitter last week in the wake of the insider trading scandal that hit the company:

The insider trading case offered us an insight into just how ramshackle the SEC’s approach is to crypto securities when it decided that nine of the 25 tokens involved in the case were securities while the others weren’t – seven of which Coinbase lists.

SEC Not Helping Matters

Of course, the situation is made more complicated for Coinbase, and other exchanges trying to be compliant, in that the SEC still hasn’t issued clear guidelines for crypto exchanges as to what constitutes a security in the 21st century.

The guidance still stretches back to the Howey test from 1946, and it is ludicrous that a ruling from 76 years ago still applies in the modern financial world, with exchanges left to work out securities status for themselves and potentially be penalised rather than the SEC offering guidance pre-listing.