US SEC charges crypto platform Coinbase, one day after suing Binance

NEW YORK, June 6 (Reuters) – The U.S. Securities and Exchange Commission sued Coinbase ( COIN.O ) on Tuesday, accusing the largest U.S. cryptocurrency exchange of operating illegally because it did not first register with the regulator.

The lawsuit is the SEC̵[ads1]7;s second in two days against a major cryptocurrency exchange, following the case against Binance, the world’s largest cryptocurrency exchange, and founder Changpeng Zhao.

Both civil cases are part of SEC Chairman Gary Gensler’s push to assert jurisdiction over crypto markets, which he again on Tuesday labeled a “Wild West” for investing, protecting investors while bolstering their confidence in capital markets.

“The crypto markets undermine that trust, and I will say this: it undermines our overall capital markets,” Gensler told CNBC on Wednesday.

Paul Grewal, Coinbase’s general counsel, said in a statement that the company will continue to operate as usual.

“The SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry harms America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance,” he added.

Shares of Coinbase’s parent Coinbase Global Inc fell $9.37, or 16.2%, to $49.33, after falling as much as 20.9%.

In a complaint filed in Manhattan federal court, the SEC said that since at least 2019, Coinbase has made billions of dollars by operating as an intermediary on crypto transactions while avoiding disclosure requirements meant to protect investors.

The SEC said Coinbase traded at least 13 cryptoassets that are securities that should have been 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 of customer crypto assets and funds on its balance sheet. Transactions generated 75% of net income of $3.15 billion last year.

‘CAN’T IGNORE THE RULES’

Tuesday’s complaint addressed several aspects of Coinbase’s business including Coinbase Prime, which routes orders; Coinbase Wallet, which allows investors to access liquidity; and the betting service Coinbase Earn.

In the stake program, Coinbase collects crypto assets and uses them to facilitate activity on the blockchain network, in exchange for “rewards” it gives to customers after taking a commission for itself.

The SEC said Coinbase was “fully aware” that its business was subject to federal securities laws but ignored it.

“You simply cannot ignore the rules because you don’t like them or because you prefer different ones,” SEC Enforcement Chief Gurbir Grewal said in a statement.

Tuesday’s lawsuit seeks civil penalties, recovery of ill-gotten gains and injunctive relief. In March, the SEC had warned Coinbase that securities charges could be forthcoming.

Coinbase’s friction with Gensler dates to 2021, when the SEC threatened to sue if Coinbase allowed users to earn interest by lending out digital assets. The company scrapped the idea.

In the Binance case, the SEC charged that the exchange inflated trading volumes, diverted customer funds, improperly commingled assets, failed to keep wealthy US customers off the platform, and misled customers about controls.

Binance vowed to vigorously defend itself against the lawsuit, saying the case reflects the SEC’s “misguided and willful refusal” to provide clarity and guidance to the crypto industry.

The 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 Heavens, Chizu Nomiyama and Nick Zieminski

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