Volkswacht Bodensee - US securities regulator sues cryptocurrency platform Coinbase

The complaint -- which sent Coinbase shares sharply lower -- comes on the heels of Securities and Exchange Commission (SEC) charges filed Monday against cryptocurrency exchange Binance and founder Changpeng Zhao for numerous securities law violations, including running an unregistered national securities exchange.

"Since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities," said the SEC in a statement.

The largest crypto assets trading platform in the United States, Coinbase had 110 million users and $80 billion in assets at the end of 2022.

In filing a complaint in federal court, the SEC said Coinbase's failure to register "has deprived investors of significant protections, including inspection by the SEC, record-keeping requirements, and safeguards against conflicts of interest, among others."

In the absence of congressional action, the US regulator has stepped up its oversight of cryptocurrency, an approach that Coinbase slammed on Tuesday.

"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," said Paul Grewal, general counsel of Coinbase.

"The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation," Grewal said. "In the meantime, we'll continue to operate our business as usual."

Grewal was scheduled to testify before a House of Representatives panel later on Tuesday at a hearing on the "future of digital assets."

Binance on Monday also blasted the SEC for responding to the industry with "the blunt weapons of enforcement and litigation" rather than a more "nuanced" approach.

The SEC said Coinbase's "staking-as-a-service" program should have been registered as a securities offering.

Under the program, Coinbase pools customers' crypto assets, uses those assets to perform blockchain transaction validation services and provides a portion of the rewards back to customers.

"Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them," said SEC director of enforcement, Gurbir Grewal.

"While Coinbase's calculated decisions may have allowed it to earn billions, it's done so at the expense of investors by depriving them of the protections to which they are entitled," Grewal added.

Coinbase shares fell 14.7 percent to $50.07 in morning trading.

K.Brown--BTB