One day after suing Binance, the SEC launched another lawsuit against Coinbase for allegedly operating as an unregistered broker, exchange, and clearing agency. The company facilitates the buying, selling, and trading of various crypto assets, including crypto-asset securities, has amassed a staggering 108 million customers, and handles billions of dollars in daily trading volume.
The SEC has accused Coinbase of evading regulatory oversight by failing to register with the agency. While Coinbase combines the functions of brokers, exchanges, and clearing agencies on its platform, it has never obtained the necessary licenses or met the disclosure requirements mandated by Congress to safeguard the securities market.
Coinbase has raked in billions of dollars in revenue by collecting transaction fees from investors deprived of important disclosures and protections associated with registered platforms. This has exposed these investors to significant risks, raising concerns about Coinbase’s compliance with investor protection regulations.
SEC’s Claims Against Coinbase
The SEC has invoked the Securities Exchange Act of 1934, a pivotal legislation aimed at regulating national securities markets.
The SEC claims Coinbase’s violations extend beyond its core trading platform. The company’s services, Coinbase Prime and Coinbase Wallet, have also operated as unregistered brokers, further exacerbating its noncompliance with securities laws. Additionally, the SEC claims Coinbase Earn, the staking program, allows investors to earn financial returns through its organizational efforts with blockchain protocols.
It is alleged that Coinbase has knowingly and deliberately disregarded the Supreme Court’s Howey test—which determines an asset as a security if there is an investment of money into a joint enterprise with an expectation of profit derived from the efforts of others. The SEC holds that despite public claims of compliance, Coinbase has continued to make available crypto assets that meet the criteria of investment contracts, prioritizing its profits over the interests of investors and the legal obligations imposed by the securities laws.
The SEC seeks permanent restraints and injunctions to prevent Coinbase from further engaging in these unlawful practices, which pose a significant risk to investors and contravene federal securities laws.
Conclusion
This lawsuit is absurd. The SEC is already involved in a case against Coinbase since issuing the exchange a vague Wells Notice in March 2023. Since then, Coinbase has tried to resolve its disputes with the SEC by filing an Amicus Brief that same month, seeking regulatory clarity on digital assets regarding their status as either securities or commodities.
The SEC ignored the brief (which they’re legally required to respond to) and launched a new fruitless suit against Coinbase, claiming the same things they did months ago.
It is absolute madness; where is the due process that Coinbase is supposed to be guaranteed after responding to the initial SEC Wells Notice? How can the SEC continue naming cryptocurrencies as securities when they cannot clearly define them?
If the SEC has no legislation to operate under, Gary and the boys can continue their convoluted, loopholing assault on the US digital asset sector until absolutely all innovation has been driven offshore and there is no longer a threat to the centralized and debt-based monetary system.
