NEW YORK, June 6 (Reuters) – The U.S. Securities and Exchange Commission on Tuesday sued Coinbase ( COIN.O ), accusing the largest U.S. cryptocurrency platform of operating illegally after failing to register as an exchange.
The SEC’s second case against a major crypto exchange in two days follows the lawsuit against the world’s largest cryptocurrency exchange Finance and founder Changpeng Zhao.
The two civil suits are part of an effort by SEC Chairman Gary Gensler to assert jurisdiction over crypto markets, which he again called a “Wild West” investment on Tuesday, and boost investor confidence in capital markets.
“Crypto markets are undermining that confidence, and I will say this: It’s undermining our overall capital markets,” Gensler told CNBC.
Crypto companies, including Coinbase, have said the SEC rules are unclear and that the regulator overreaches by emphasizing oversight of their industry.
Paul Grewal, Coinbase’s general counsel, said in a statement that the company will continue to operate as usual and “expresses its commitment to compliance.”
Ten US states Led by California They also accuse Coinbase of violating securities laws in its staking rewards program.
Shares of Coinbase’s parent company, Coinbase Global Inc, were down $6.42, or 10.9%, at $52.29 in afternoon trading, having previously fallen as much as 20.9%.
Coinbase customers withdrew more than $57 million within hours of the SEC filing, according to data firm Nansen.
Thirteen Crypto Assets
In a complaint filed in Manhattan federal court, the SEC alleged that Coinbase has operated as an intermediary in crypto transactions since at least 2019, making billions of dollars while avoiding disclosure requirements to protect investors.
The SEC said Coinbase traded at least 13 crypto assets that must be registered securities, 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 in customer crypto assets and funds on its balance sheet. Transactions generated 75% of its $3.15 billion in net revenue last year.
In its Staking Rewards program, which has about 3.5 million customers, Coinbase collects crypto assets and uses them to support operations on the blockchain network, offering them to customers in exchange for “rewards” after buying a commission.
States focused on the program include Alabama, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington and Wisconsin. New Jersey A fine was imposed Coinbase $5 million for selling unregistered securities.
‘Rules cannot be ignored’
The SEC’s filing on Tuesday seeks civil penalties, ill-gotten gains and injunctive relief. The SEC warned Coinbase in March that charges could be coming.
“You can’t ignore the rules just because you don’t like them or want something different,” SEC Enforcement Chief Gurbir Grewal said in a statement.
Gensler’s crackdown on crypto has prompted the industry to increase compliance, stack products and expand outside the country.
Christine Smith, CEO of the Blockchain Association trade group, dismissed Gensler’s efforts to oversee the industry.
“We hope the courts will prove Chairman Gensler wrong in due course,” he said.
In the Binance case, the SEC alleged that it inflated trading volumes, diverted customer funds, improperly pooled assets, failed to keep wealthy US customers off its platform and misled customers about its regulations.
Finance He promised strongly argued against the lawsuit, and said the lawsuit reflects the SEC’s “wrongful and conscious refusal” to provide clarity and guidance to the crypto industry.
Coinbase’s friction with Gensler dates back to 2021, when the SEC threatened to sue Coinbase if it allowed users to earn interest by lending digital assets. The company dropped the idea.
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 Long and Michelle Price in Washington, DC and Manya Saini in Bangalore; Editing by Jason Neely, Louise Heavens, Chisu Nomiyama and Nick Zieminski
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