- The SEC yesterday sued Coinbase over unregistered sales of securities
- The commission pointed to 13 coins it says Coinbase sold that it classes as securities
- Yesterday’s action came the day after similar charges were laid at Binance’s door
The US Securities and Exchange Commission (SEC) yesterday followed up its legal action against Binance by suing Coinbase for selling unregistered securities. Similar to the Binance lawsuit earlier this week, the accusation made by the SEC against Coinbase relates to its alleged operation as a “broker, securities exchange, and clearing agency” without proper registration. It also accused Coinbase of making “misleading statements” over its registration status and the regulatory framework governing its operations. Coinbase CEO Brian Armstrong has welcomed the battle, revelling in the opportunity to lay the SEC’s actions out in front of a judge for the first time.
SEC Highlights Five Transgressions
In its filing, which came just a day after its lawsuit against Binance and Binance.US, the SEC accused Coinbase of five things:
- Violation of Securities Act: Coinbase was accused of conducting an unregistered offering of security-based swaps, which is a violation of Section 5 of the Securities Act of 1933.
- Failure to Register as Exchange: Coinbase was charged with operating as an unregistered national securities exchange, in violation of Section 5 of the Securities Exchange Act of 1934.
- Failure to Register as Broker: Coinbase was accused of acting as an unregistered broker-dealer, in violation of Section 15(a) of the Securities Exchange Act of 1934.
- Offering and Selling Unregistered Securities: The complaint alleged that Coinbase listed and offered several digital assets that qualify as securities, without registering these securities with the SEC.
- Misleading Statements: Coinbase was charged with making misleading statements and omissions regarding its registration status, the need for registration, and the regulatory framework governing its operations.
The commission stated that Coinbase’s failure to register has resulted in investors being denied the necessary disclosures and safeguards they are entitled to, thereby subjecting them to considerable risks, naming 13 cryptocurrencies that it said met the criteria of being securities. This repeats the behaviour seen in the Binance case, where the SEC seemingly plucks a bunch of coins from the air and gives the operators no chance to argue back.
As a result of its infractions, the SEC wants injunctive relief, disgorgement of ill-gotten gains, prejudgment interest, civil penalties, and “any other and further relief this Court may deem appropriate or necessary for the benefit of investors.”
“We’ll Get the Job Done”
Armstrong responded to the lawsuit by pointing to the SEC’s behaviour over their business, including the fact that it tells exchanges to register but doesn’t say how, refuses to engage after asking crypto firms to “come in and talk to us”, and how it approved Coinbase’s public listing in 2021, which many took to be a sign of progress:
Regarding the SEC complaint against us today, we’re proud to represent the industry in court to finally get some clarity around crypto rules.
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…
— Brian Armstrong 🛡️ (@brian_armstrong) June 6, 2023
Referring to the Binance lawsuit, which included allegations of wrongdoing relating to AML/KYC reporting requirements, Armstrong was quick to clear up the scope of the Coinbase allegations:
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.
Armstrong signed off with a rallying cry, saying, “We’ll get the job done,” two years after Coinbase was urged to fight the SEC over its eventually aborted Coinbase Earn product. On the surface it seems that Coinbase has a strong argument against the SEC’s actions, especially given that it now has support from Congress, so the forthcoming battle will be fiery, and important.