United States regulators are currently closely monitoring Coinbase as the company faces a new lawsuit filed earlier today. The lawsuit alleges that the prominent cryptocurrency platform is engaging in operations as an unregistered securities platform and brokerage service. Following this development, the value of Coinbase shares experienced a significant drop of nearly 17%.
Adding to the regulatory scrutiny in the crypto industry, the Securities and Exchange Commission (SEC) has swiftly taken action by filing charges against Binance, the world’s largest cryptocurrency exchange, and its founder Changpeng Zhao.
The SEC accuses them of misappropriating investor funds, operating as an unregistered exchange, and violating numerous U.S. securities laws. Remarkably, the lawsuit against Coinbase was brought to light just one day after the initial charges were filed against Binance and its founder.
SEC’s Lawsuit Against Coinbase
The Securities and Exchange Commission (SEC) has alleged in its complaint that Coinbase has generated billions of dollars by acting as an intermediary between cryptocurrency buyers and sellers. Furthermore, the SEC claims that the crypto company failed to provide investors with the necessary legal protections while operating as a broker.
The aforementioned lawsuit was filed in the U.S. District Court for the Southern District of New York. In its filing, the SEC asserted that “Coinbase has consistently disregarded regulatory frameworks and evaded the disclosure requirements established by Congress and the SEC to safeguard the national securities markets and investors.”
According to reports, the SEC is seeking injunctive relief, the disgorgement of unlawfully obtained profits with interest, penalties, and other forms of equitable relief. In response, Coinbase has countered that the SEC lacks transparency in its regulation of cryptocurrencies.
Paul Grewal, the chief legal officer and general counsel for the crypto company, has stated in a written agreement that the Securities and Exchange Commission’s (SEC) exclusive reliance on enforcement actions, in the absence of well-defined regulations for the digital asset industry, is negatively impacting America’s economic competitiveness.
Grewal emphasized that companies like Coinbase, which have shown a strong commitment to compliance, are also being affected. He further expressed that the ideal solution lies in the enactment of legislation that would facilitate the development of clear and transparent rules for the industry.
Such legislation, according to Grewal, would ensure equal application of these rules, rather than resorting to litigation. He also affirmed that, in the meantime, Coinbase will continue to conduct its business operations in the usual manner.
It is noteworthy that the Securities and Exchange Commission (SEC) had previously issued a warning against Coinbase in March. In this cautionary statement, the SEC indicated that the company could potentially face securities charges.
Furthermore, the regulatory body highlighted that Coinbase had been disregarding securities laws by maintaining the stance that cryptocurrencies were not classified as securities, and therefore, the crypto company did not need to register as a broker.
In response, Grewal emphasized that ignoring or disregarding rules due to personal preference or a desire for different regulations is not acceptable. Grewal stressed that the repercussions for the investing public would be significant and far-reaching.