Coinbase Faces Legal Challenges from SEC and State Regulators
It has been a challenging day for Coinbase (COIN) as the crypto exchange is embroiled in legal battles with the U.S. Securities and Exchange Commission (SEC) and ten state regulators. These developments have also led to a significant drop in Coinbase stock prices.
SEC’s Allegations Against Coinbase
The SEC has filed a complaint against Coinbase, accusing the exchange of operating as an unregistered securities exchange and offering an unregistered security to the public through its staking-as-a-service program. According to SEC Chair Gary Gensler, Coinbase violated U.S. securities laws by engaging in unlawful exchange, broker-dealer, and clearinghouse functions.
The SEC’s complaint further alleges that Coinbase’s staking program resembles an unregistered security and investment contract, enabling investors to earn financial returns through the platform’s managerial efforts. Additionally, the complaint highlights Coinbase’s actions to list more crypto assets, potentially exposing investors to assets offered and sold as securities.
State Regulators Join the Fray
In addition to the SEC’s legal action, a task force comprising regulators from ten states has also targeted Coinbase. The Alabama Securities Commission issued a show cause notice to Coinbase, giving the exchange 28 days to justify its sale of unregistered securities in Alabama.
Crypto Industry and Compliance
SEC Chair Gensler emphasized during a recent CNBC appearance that the crypto industry often operates in non-compliance with securities laws. He highlighted concerns about crypto intermediaries commingling customer funds and trading against users. Gensler dismissed the notion that regulatory enforcement stifles innovation, asserting that proper oversight builds trust in the investing public and contributes to economic growth.