The US has accused the country’s largest crypto trading platform of operating illegally, sparking a widespread crackdown on the industry.
The Securities and Exchange Commission said Coinbase acted as a broker, exchange and clearing agency for investments subject to SEC rules without being properly registered.
The regulator said it allowed the firm to escape oversight, including guards against conflicts of interest.
Coinbase said the rules were unclear.
“The solution is legislation that allows fair rules of the road to be transparently developed and applied equitably,” said Paul Grewal, Coinbase’s chief legal officer. “In the meantime, we will continue to operate our business as usual.”
The complaint against Coinbase comes shortly after the SEC sued Binance, the world’s largest crypto trading platform, alleging the company mishandled customer funds, artificially inflated trading volume on the site and took steps to evade US regulation.
Authorities have vowed to police the industry more aggressively with existing rules, arguing that many crypto assets act like other investments that are subject to oversight.
Efforts to increase scrutiny have intensified since last year’s dramatic collapse of another major exchange, FTX.
On Tuesday, financial regulators from 10 states, including California and Alabama, filed lawsuits accusing Coinbase of operating as an unregistered securities dealer.
“As alleged in our complaint, Coinbase was fully aware that federal securities laws applied to its business operations, but willfully refused to follow them,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.
“You can’t ignore the rules because you don’t like them or prefer different ones: the consequences for the investing public are huge.”
Founded in 2012, Coinbase says it has more than 100 million customers and billions of dollars worth of trading volumes for digital assets like Bitcoin each day.
The firm had a market cap of around $100 billion when it listed on the stock exchange in 2021 at the height of the crypto craze.
But shares in Coinbase have fallen sharply since crypto values plunged last year. It is now valued at less than $12bn.
The firm’s shares fell on news of the lawsuit, which was filed in federal court in New York.
They fell 12% on the day, while Nansen, which tracks crypto flows, reported that customers withdrew about $1.3 billion from the platform following the lawsuit.
In March, Coinbase warned that the SEC would take legal action against the firm. At the time, it called the development disappointing and said it had repeatedly tried to work to register with authorities, but there was no clear way for crypto firms to do so. He has also threatened to move from the US to London or elsewhere.
On Tuesday, Grewal said: “The SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry harms America’s financial competitiveness and companies like Coinbase.”
The chief executive of the industry group Blockchain Association pointed to ongoing debate in Congress as evidence that the laws governing the industry remain in flux.
On the same day the SEC filed its lawsuit against Coinbase, Mr. Grewal was scheduled to testify in Washington at a hearing on drafting rules to oversee certain types of digital assets.
In prepared comments for that hearing, Grewal said Coinbase had carefully reviewed whether the assets offered on its platform could be considered securities regulated by the SEC. He said it did not list securities and rejected the “vast majority” of proposals.
“The SEC doesn’t make the law — it only makes allegations — and we’re confident that the courts will prove (SEC Chairman Gary) Gensler wrong in due course,” said Christine Smith, chief executive of the Blockchain Association.