NEW YORK, June 6 (Reuters) – The U.S. Securities and Exchange Commission sued Coinbase ( COIN.O ) on Tuesday, accusing the largest U.S. cryptocurrency platform of operating illegally after failing to register as an exchange, in another blow to the crypto industry. .
This is the SEC’s second case against a major crypto exchange in two days, following its case against Binance, the world’s largest cryptocurrency exchange, and founder Changpeng Zhao.
The two civil cases are part of SEC Chair Gary Gensler’s push to assert jurisdiction over the crypto industry, which he again labeled the “Wild West” on Tuesday, undermining investor confidence in US capital markets.
“The entire business model is built on not complying with US securities laws, and we’re asking them to comply,” Gensler told CNBC.
Crypto companies say the SEC rules are unclear and the agency is overreaching by trying to regulate them.
Coinbase’s general counsel Paul Grewal said in a statement that the company will continue to operate as usual and has “demonstrated a commitment to comply.”
Ten US states, led by California, accused Coinbase of securities law violations in connection with its staking rewards program on Tuesday.
Shares of Coinbase’s parent Coinbase Global Inc fell $6.42, or 12.8%, to $52.29 after earlier falling as much as 20.9%.
Coinbase customers withdrew more than $57 million within two hours of the SEC filing, according to data firm Nansen.
Thirteen Crypto Assets
In a complaint filed in Manhattan federal court, the SEC said Coinbase has made billions of dollars since at least 2019 by acting as an intermediary in crypto transactions and evaded disclosure requirements to protect investors.
The SEC said Coinbase traded at least 13 cryptoassets that are securities that must be registered, including tokens such as Solana, Cardano and Polygon.
Founded in 2012, Coinbase recently served more than 108 million customers and ended March with $130 billion in customer crypto assets and funds on its balance sheet. Transactions generated 75% of its net income of $3.15 billion last year.
In its staking rewards program, which has about 3.5 million customers, Coinbase pools crypto assets and uses them to support activity on the blockchain network, in exchange for “rewards” that it takes to customers after taking a commission for itself.
Alabama, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin are among the states focused on the program. New Jersey fines Coinbase $5 million for selling unregistered securities
‘Laws cannot be ignored’
Tuesday’s SEC lawsuit seeks civil penalties, restitution of ill-gotten gains and injunctive relief. The SEC warned Coinbase in March that charges were likely.
“You can’t ignore the rules just because you don’t like them,” SEC Enforcement Chief Gurbir Grewal said in a statement.
Gensler’s crypto crackdown prompted the industry to increase compliance, shelve products and expand outside the country.
Christine Smith, CEO of the Blockchain Association trade group, dismissed Gensler’s attempts to oversee the industry.
“We are confident that the courts will prove Chair Gensler wrong,” she said.
On Monday, the SEC accused Binance of increasing trading volume, diverting customer funds and improperly commingling assets, failing to exclude wealthy US customers from its platform and misleading customers about its regulations.
Investors pulled about $790 million from Binance and its U.S. affiliate following Monday’s news, data firm Nansen said Tuesday morning.
Binance has vowed to vigorously defend the lawsuit, saying it reflects the SEC’s “wrongful and deliberate refusal” to provide clarity to the crypto industry.
Coinbase’s friction with Gensler dates back to 2021, when the SEC threatened to sue Coinbase if it allowed users to earn interest by lending digital assets. The company scrapped the idea.
Tuesday’s case is SEC v Coinbase Inc et al, US District Court, Southern District of New York, No. 23-04738.
Reporting by Jonathan Stempel in New York; Additional reporting by Hannah Lang and Michelle Price in Washington, DC, and Manya Saini in Bengaluru; Editing by Jason Neely, Louise Havens, Chizu Nomiyama, Nick Zieminski
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