SEC has begun its extensive investigation into companies dealing in digital assets by filing a lawsuit to freeze the assets of Binance.US and suing Coinbase in the process. The two recent enforcement actions show the seriousness of the SEC in bringing the cryptocurrency industry under its regulatory scope considering the two are key participants in the market.
SEC, the Securities and Exchange Commission of the USA has accused Coinbase, the largest cryptocurrency exchange by trading volume in the country of acting as a securities exchange, broker, and clearing agency. Coinbase is alleged to have violated reporting requirements since 2019. The lawsuit seeks civil penalties, the forfeiture of ill-gotten gains, and a permanent injunction against violating SEC rules.
COIN, the stock of Coinbase Global Inc. shed 14% of its value on Tuesday, July 11, data from Yahoo Finance showed, in response to the suit. Company officials were unperturbed about the latest enforcement action by the regulatory body and assured customers that business will go on as usual.
1/ As you might have heard, on June 6, 10 US states initiated proceedings related to Coinbase’s retail staking services. Let’s dig into what this means for our customers. pic.twitter.com/pQidr0Ijc9
— Coinbase 🛡️ (@coinbase) July 14, 2023
In another lawsuit, the SEC charged Binance with the violation of securities laws and alleged that the largest cryptocurrency exchange by trading volume has been deceiving its investors.
One major concern of the SEC is centered around Chanpeng Zhao, CEO of Binance who has exhibited a propensity to avoid U.S. law by controlling or influencing them. As of the time of the charge, Binance’s US arm had $2.2 billion in assets.
Despite the pressure being mounted on the firm by one of the apex regulatory bodies in the USA, Binance has disputed their claims and has assured users that their valuables are safe.
The simultaneous actions against Binance and Coinbase underscore the SEC’s commitment to regulating the crypto industry. While Coinbase is a publicly traded company incorporated in Delaware, Binance operates as a decentralized entity without a physical headquarters or jurisdiction.
These lawsuits deliver a powerful message to the industry, highlighting the SEC’s intention to enforce regulations and establish clear rules for the rapidly growing cryptocurrency market.
SEC targets Coinbase staking program
SEC’s case against Coinbase specifically targets its staking program, which allows users to earn yields on various cryptocurrencies. The commission argues that these offerings qualify as investment contracts and lists 12 popular cryptocurrencies available on Coinbase that it believes should be classified as securities.
This legal action against staking services reflects broader regulatory scrutiny regarding the classification of such activities and their compliance with securities laws.
Coinbase’s legal battle with the SEC had been anticipated, as the company had received a Wells notice earlier this year indicating impending charges. The exchange has expressed confidence in the legality of its assets and services and has called for transparent legislation to develop fair rules for the industry. Coinbase’s chief legal officer emphasized that the company will continue to operate as usual and criticized the SEC’s enforcement-focused approach.
SEC’s stance has led to the suspension of staking services temporarily
SEC’s enforcement action has led to the temporary suspension of its staking services in four states which are California, New Jersey, South Carolina, and Wisconsin. This decision comes as local regulators in these states initiate legal proceedings against the exchange.
Coinbase strongly disagrees with the allegations that its staking services are securities but intends to comply with the temporary suspension in these states while fighting the ban in court. Customers in other states remain unaffected and can continue staking their cryptocurrencies for passive income.
SEC’s approval of Coinbase’s S-1 filing is not a verification of compliance
SEC’s recent arguments in court regarding its approval of Coinbase’s S-1 filing to go public have raised questions about the agency’s role and responsibility. The SEC trial counsel Peter Mancuso clarified that approving an S-1 application does not imply a blessing or verification of regulatory compliance by the agency.
“The acceptance of an S-1 does not constitute a complete endorsement of the firm. In reality, Coinbase has not provided any evidence to suggest that the SEC conducted a thorough review of the assets in question and ultimately determined that they did not constitute a security.”
The court hearing exposed skepticism regarding the SEC’s diligence and oversight in reviewing business structures and potential violations of securities laws. This revelation further complicates the ongoing legal battle between Coinbase and the SEC.
The @SECGov is taking the position that just because they allow a company to go public, doesn't mean that the company's underlying business is legal. How ludicrous. pic.twitter.com/HsJ4anhd3H
— Cameron Winklevoss (@cameron) July 14, 2023
In summary, the SEC’s intensified crackdown on cryptocurrency firms through lawsuits against Coinbase and Binance signals the regulator’s determination to bring the industry under its jurisdiction.
These actions aim to establish clear regulations and enforce compliance, focusing on reporting requirements, investor protections, and the classification of various crypto activities. The outcomes of these cases will have significant implications for the industry and shape the future regulatory landscape for cryptocurrencies in the United States and abroad.
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