- Coinbase operated as a clearinghouse, an exchange, and an unregistered broker
- Coinbase "knew" some of the cryptos US customers had available could be securities
- SEC rejected the exchange’s legal request to pass clear laws on crypto
Coinbase is being sued by the US Securities and Exchange Commission on allegations of violating federal securities laws, just one day after the regulator took aim at Binance, CoinDesk reported. Allegedly, Coinbase operated as a clearinghouse, an exchange, and an unregistered broker at the same time.
They merged typically separate functions
SEC argues that Coinbase processed orders, solicited customers, acted as a middleman, and accepted bids all at once. Coinbase, Inc. and Coinbase Global, Inc. are named as defendants.
The lawsuit states:
The Coinbase Platform merges three functions that are typically separated in traditional securities markets – those of brokers, exchanges, and clearing agencies. Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency, thus evading the disclosure regime that Congress has established for our securities markets.
According to SEC Chair Gary Gensler, the exchange deprived investors of regulations preventing fraud and manipulation, violated disclosure rules, and made “routine inspection by the SEC" impossible.
Coinbase knew some cryptos could be securities
The regulator also finds that Coinbase knew some of the cryptos US customers had available to them could have been securities. The exchange’s Crypto Ratings Council initiative was given as an example. Coinbase launched it in 2019 to try and build a system to establish whether a digital asset was a security.
At that time, the exchange introduced “high-risk” crypto assets under the CRC framework, even though it recognized they had some of the properties of securities.
SEC targets Prime and Wallet
The SEC identified Cardano, Solana, Polygon, Filecoin, Sandbox, Axie Infinity, Near, Chiliz, Flow, Dash, Internet Computer, Voyager, and Nexo as securities in the lawsuit. All of these cryptos are available on Coinbase's Wallet or Prime services.
Coinbase sought clarity to no avail
As Bankless Times reported, Coinbase received a Wells Notice from the SEC, which expressed the regulator’s intentions to sue the exchange for letting its customers earn interest through its Lend program. SEC considered the crypto yield program a security.
In May this year, SEC rejectedthe exchange’s legal request to pass clear laws on crypto, stating that legislation could take years and they would continue with enforcement in the meantime.
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