The US Securities and Exchange Commission (SEC) Has Filed a Lawsuit Against Coinbase As Part of Its Expanding Efforts to Regulate Cryptocurrency Exchanges

07 Jun 2023

Mitchell Nixon


The US Securities and Exchange Commission has directed its attention towards a wide range of the cryptocurrency market by initiating a pair of lawsuits against exchanges that collectively represent half of the global digital asset trading.

Per the Financial Times, on Tuesday, the financial regulator filed a lawsuit against Coinbase, the exchange group headquartered in San Francisco, claiming that it violated US securities law by neglecting to register as a broker, national securities exchange, or clearing agency. This development resulted in a 12 percent drop in Coinbase shares.

Coinciding with the previous day’s actions, the SEC also lodged a complaint against Binance and its CEO Changpeng Zhao, alleging various civil charges, such as the improper commingling of customer funds with those of a trading firm owned by Zhao.

Gary Gensler, the chair of the SEC, has actively asserted his agency’s position as the primary regulatory authority for cryptocurrencies in the United States. Since the beginning of the year, the commission has launched numerous enforcement actions against crypto companies.

According to the SEC’s allegations, Coinbase has been operating as an unregistered broker since at least 2019 through its exchange platform, prime brokerage, and crypto wallet service, which securely holds customers’ funds on their behalf. These platforms offered assets that the regulator has classified as securities, effectively bringing Coinbase’s operations within the scope of securities laws.

Gensler stated: “Coinbase’s alleged failures deprive investors of critical protections, including rule books that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC.”

In March, Coinbase revealed that it had received a Wells notice from the SEC, indicating the possibility of regulatory action. The company has emphasised the necessity for more defined regulations in its industry.

“The SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance,” stated Paul Grewal, Coinbase general counsel. “The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation.”

The SEC’s case represents the most recent regulatory issue for Coinbase, a company that generated $3.1 billion in net revenue last year. In January, Coinbase reached a settlement of $100 million with New York regulators due to deficiencies in its money-laundering controls.

Additionally, on Tuesday, Coinbase received an order from the securities regulator in Alabama, which requested an explanation as to why the company should not be prohibited from “selling unregistered securities” within the state. This action, related to Coinbase’s staking rewards program, is a result of collaboration among ten state securities regulators, including those in California and Illinois.

Furthermore, the SEC has filed 13 charges against Binance, the largest cryptocurrency exchange globally, and its CEO Zhao. Binance’s international exchange, US exchange, and Coinbase collectively hold a 50.6 percent share of the cryptocurrency trading market, as per data provided by CCData, a data platform.

We did an article on that here.

“These trading platforms, they call themselves exchanges, are commingling a number of functions which [we don’t see] in traditional finance,” Gensler stated to CBNC.

The SEC aims to prevent Coinbase and Binance from violating specific sections of securities and exchange laws. They seek to recover alleged unlawfully obtained profits, impose a monetary penalty, and at Binance, permanently prohibit Zhao from serving as an officer or director of any issuer registered with the agency.

Furthermore, in a distinct submission made on Tuesday, the SEC requested a temporary asset freeze on various entities associated with Binance. They also sought repatriation and other forms of relief for customer assets held on Binance’s US platform.

Despite Bitcoin breaking down to technical support after the Binance case came forward, the Bulls and industry have seemingly not only thrown their support behind Binance and Coinbase, but evidently Bitcoin too, rocketing the price off support:

Per the above chart, Bitcoin put in a 7% rally off of support on the news.

Interesting to see what comes from this! Does Gary have any more ammunition left? 

Moral of this story is – Bitcoin is bigger than any government, nation or enterprise.