Crypto asset company Coinbase and its parent company have 28 days to show why they should be allowed to continue doing business in Alabama.
The Alabama Securities Commission issued a show-cause order to the company as part of a multi-state task force of 10 state securities regulators, including California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington and Wisconsin.
The move comes at the same time that the Securities and Exchange Commission sued Coinbase in New York federal court. Shares fell 22 percent in premarket trading on Tuesday.
According to ASC Director Amanda Senn, the order protects Alabama consumers and investors.
“This step is another step to ensure that investors in crypto asset products are offered the same protections under our laws and are fully aware of the risks involved in these investments,” Sen said.
ASC estimates that 33,000 Coinbase accounts are currently held by Alabama investors.
The Alabama show cause order alleges that Coinbase violates securities law by offering its staking rewards program accounts to Alabama residents without registration to offer or sell these securities. Staking occurs when investors lock up their crypto assets for a certain period of time to support the operation of a blockchain with the promise of more crypto assets.
According to the ASC, under Coinbase’s staking rewards program, investors stake crypto assets on Coinbase, which helps invest these assets on the blockchain. The program advertises returns of up to 6% on investments. Coinbase pools investors’ crypto assets and hires a team to generate staking rewards. Coinbase takes a cut of those profits.
The ASC action does not prohibit Coinbase from providing staking as a service, as long as it complies with Alabama’s laws.
According to the ASC, Coinbase’s approximately 3.5 million staking rewards program accounts are not insured by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC).
Investors are encouraged to contact the ASC to confirm a staking rewards program’s registration status before investing their money.