SEC sues Coinbase for allegedly violating US securities law

The US Securities and Exchange Commission has sued crypto exchange Coinbase for allegedly violating securities law as it steps up its crackdown on the digital assets market.

The US regulator said on Tuesday that San Francisco-based Coinbase “has never registered” with the regulator as a broker, national securities exchange or clearing agency.

It had also offered customers unregistered securities, the SEC said. Coinbase shares were down 16 per cent in pre-market trading on the Nasdaq.

The SEC’s move comes a day after it announced a wide-ranging case against Binance, accusing the world’s largest crypto exchange of violating 13 securities laws including allegations that it mixed billions of dollars of customer cash with a separate company owned by its chief executive.

“Coinbase’s alleged failures deprive investors of critical protections, including rule books that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC,” said Gary Gensler, chair of the SEC.

The agency alleged that since at least 2019, Coinbase has operated as an unregistered broker through its Coinbase exchange platform, its prime brokerage and crypto wallet service, which stores customers’ funds on their behalf.

“Coinbase has carried out these functions despite the fact that the crypto assets it has made available for trading on the Coinbase Platform, Prime, and Wallet have included crypto asset securities, thus bringing Coinbase’s operations squarely within the purview of the securities laws,” the SEC said.

It added that the US company has been “paying lip service to its desire to comply with applicable laws” but instead allowed trading of products “that are investment contracts under the Howey test and well-established principles of the federal securities laws”.

Coinbase did not immediately respond to a request for comment.