The US Securities and Exchange Commission has sued a major cryptocurrency exchange. The SEC suit against the Nasdaq-listed exchange Coinbase, alleging that it has violated securities laws.
“We are reaching an end state where if the current regulatory crackdown in the US proceeds unchecked, then you’re basically banning most crypto activity in the US,” says Omid Malekan, an adjunct professor at Columbia Business School and author of Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets and Platforms.
The SEC’s complaint doubles down on its long-standing assertion that many crypto tokens are simply securities, as defined under existing laws in the US. That means they fall under its purview, the regulator says. The suit, accuses Coinbase of knowingly operating an unregistered securities exchange by selling tokens, including Sol, Ada, and Matic, to US investors. The SEC also accuses Coinbase of violating securities law in connection with its staking service, which lets customers earn profits on certain crypto holdings by pooling them and locking them up.
“You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: The consequences for the investing public are far too great,” said Gurbir S. Grewal, director of the SEC’s enforcement division, in a public statement. “Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them.”
Coinbase fired back at the regulator, stating the SEC has failed to mark out a road to compliance for crypto. “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,” says Paul Grewal, the company’s chief legal officer. Coinbase has “demonstrated commitment to compliance,” he claims, and will continue to operate as usual while it defends against the complaint.
Any exchange that supports the trading of securities must first register with the SEC—a process that comes with various reporting and diligence requirements. SEC chair Gary Gensler has long called on crypto exchanges to register or face enforcement action. Coinbase stock fell near 14% on the news and concerned investors could being waiting for quite some time for this to play out in the courts.