In a growing effort to end what authorities see as the era of lawlessness in the cryptocurrency market, the Securities and Exchange Commission on Tuesday sued Coinbase, the largest cryptocurrency trading platform in the US. United States, alleging that the company violated the law by failing to register. as a runner.

The lawsuit came a day after the country’s top securities regulator accused Binance, the world’s largest cryptocurrency exchange, of mishandling client funds and lying to US regulators and investors about it. your operations.

With these federal actions against major cryptocurrency firms, along with other lawsuits at the state level, regulators have sought to reshape the cryptocurrency industry by treating digital asset exchanges like more traditional financial firms, while driving people out and companies they consider bad actors.

In its filing on Tuesday, the SEC detailed the ways that Coinbase leaders had shown they knew how the trading and sale of digital assets should be governed by US law, even without complying with it.

“Coinbase has elevated its interest in increasing its profits above the interests of investors and over compliance with the law and regulatory framework that governs the securities markets and was created to protect investors and the US capital markets. USA,” the presentation reads.

Coinbase went public in April 2021, an event seen as a milestone in cryptocurrency’s march into the mainstream. The company handled $830 billion worth of transactions last year, with nearly nine million users making at least one transaction per month.

The SEC said Coinbase has made billions facilitating the sale of crypto assets, but deprived investors of significant protections. His lawsuit, which was filed in federal court in Manhattan, claims the company operated as an unregistered exchange despite telling investors that some of the products traded on its platform could be considered by regulators to be securities.

Coinbase has argued that its business model got tacit approval from the SEC when it approved its initial public offering. The company has said it is willing to work with the SEC, but disagrees with its position that all digital assets offered on its trading platform must be registered securities, requiring stricter oversight.

The action is consistent with the SEC’s long-standing view that most crypto products are no different from stocks, bonds, and other securities. That means companies that operate as exchanges and provide a platform for trading and selling crypto products must register like any exchange or brokerage that facilitates trading in stocks or bonds.

“You can’t just ignore the rules because you don’t like them or because you prefer different ones: the consequences for the investing public are too great,” Gurbir S. Grewal, director of the SEC’s enforcement division, said in a statement.

Executives in the crypto industry, which has reveled in defying the rules and operating outside the heavily regulated confines of the mainstream financial industry, have often argued that digital assets are different and that many of the rules for actions shouldn’t apply.

“The SEC’s reliance on a proprietary compliance approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness,” said Coinbase chief legal officer Paul Grewal (no relation to chief compliance officer of the SEC), in a statement about The Suit. “The solution is legislation that allows fair rules of the road to be developed transparently and applied equally, not litigation,” he added.

“The message here is that regulatory clarity already exists when it comes to exchanges and broker-dealers,” said John Reed Stark, a former SEC compliance attorney and regulatory consultant.

Adding to Coinbase’s legal troubles, securities regulators in 10 states, including Alabama, California, Illinois, and New Jersey, filed their own actions Tuesday to prevent the company from selling unregistered securities to investors in their states.

State regulators said Coinbase must first register to offer those products in their states. Some states, such as New Jersey, fines imposed in the company

The SEC’s lawsuit and actions by state regulators against Coinbase touched on a crucial issue that many in the cryptocurrency industry say needs to be addressed by Congress, which is whether digital asset products are securities or something else entirely. .

The SEC has said that the test for whether a crypto product should be treated as a security stems from a 1946 Supreme Court case that led to what is known as the Howey test. SEC Chairman Gary Gensler has often said that this standard is clear and no new laws are needed to determine whether a digital asset is a security. The industry, however, has asked to dissent.

The SEC complaint took issue with Coinbase’s claims that it fully complied with applicable securities laws before offering new digital products for trading, dismissing them as “serving words.”

According to the 101-page complaint, “Coinbase has been available for years for trading crypto assets that are investment contracts under the Howey test and well-established principles of federal securities laws.”

The lawsuit against Coinbase, long anticipated by the company, comes as its executives and others in the cryptocurrency industry hope to change the narrative on digital assets. Coinbase’s Mr. Grewal testified before a House committee on Tuesday about a bill regulating cryptocurrencies. Coinbase has said it welcomes the regulation and wants to cooperate with the SEC

The SEC lawsuit is the latest enforcement in a multi-year campaign against the crypto market by the regulator, which has accelerated following the collapse of cryptocurrency exchange FTX in November and criminal charges against its founder, Sam Bankman-Fried.

Notably, the lawsuit against Coinbase did not include an allegation of fraud, like the complaint against Binance, or a request for a preliminary injunction against the company. On Monday, the SEC also sued Binance founder and CEO Changpeng Zhao. On Tuesday, he did not similarly sue Coinbase CEO Brian Armstrong.

Coinbase, unlike Binance, does not issue its own crypto tokens, and the company has argued that its status as a publicly traded company ensured that it followed strict rules about its operations.

The company petitioned the SEC for new rules last summer and even sued the agency for failing to act on its request in April.

The flurry of legal actions against Coinbase and the crackdown on the crypto industry in general have weighed on the company’s share price. Coinbase shares have fallen roughly 20 percent in the past two days.

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