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 because it failed to register as an exchange, in another blow to the crypto industry. .
The lawsuit is the second the SEC has filed in two days against a major crypto exchange, following its case against Binance, the world’s largest cryptocurrency exchange, and founder Changpeng Zhao.
Both civil lawsuits are part of Securities and Exchange Commission Chairman Gary Gensler’s efforts to assert jurisdiction over the cryptocurrency industry, which he described on Tuesday again as a “wild west” that has undermined investor confidence in US capital markets.
“The entire business model is built around non-compliance with US securities laws and we’re asking them to comply,” Gensler told CNBC.
Crypto companies say the SEC’s rules are unclear, and that the agency overreached by trying to regulate them.
Coinbase General Counsel Paul Grewal said in a statement that the company will continue to operate as usual and has “demonstrated a commitment to compliance.”
Ten US states led caOn Tuesday, Coinbase was also accused of violating securities law in connection with its staking rewards program.
Shares of Coinbase parent Coinbase Global Inc fell $6.42, or 12.8%, at $52.29, after earlier falling as much as 20.9%.
Data firm Nansen said Coinbase customers withdrew more than $57 million within two hours of the SEC filing.
Thirteen CRYPTO ORIGINALS
Since at least 2019, Coinbase has made billions of dollars by acting as an intermediary in crypto transactions, while evading disclosure requirements intended to protect investors, the SEC said in its complaint filed in Manhattan federal court.
The SEC said that Coinbase has traded at least 13 crypto assets that are securities that should have been registered, including tokens such as Solana, Cardano, and Polygon.
Founded in 2012, Coinbase recently served more than 108 million customers, and ended in March with $130 billion in customer crypto assets and funds on its balance sheet. The transactions accounted for 75% of its net revenue of $3.15 billion last year.
In its staking rewards program, which has about 3.5 million customers, Coinbase collects crypto assets and uses them to support activity on the blockchain network, in return for the “rewards” it provides to customers after taking a commission for itself.
States focused on this program also include Alabama, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin. New Jersey fined Coinbase $5 million to sell unregistered securities.
“The rules cannot be ignored.”
The SEC’s lawsuit on Tuesday seeks civil fines, wrongful gains damages and injunctive damages. The Securities and Exchange Commission warned Coinbase in March that accusations could be made.
“You can’t simply ignore the rules because you don’t like them,” Gurbir Grewal, SEC’s Chief Enforcement Officer, said in a statement.
Gensler’s crypto campaign prompted the industry to ramp up compliance, discontinue products, and expand out of the country.
Kristen Smith, CEO of the Blockchain Association trade group, dismissed Gensler’s efforts to oversee the industry.
“We are confident that the courts will prove President Gensler wrong in due course,” she said.
On Monday, the US Securities and Exchange Commission accused Binance of inflating trading volumes, diverting customer funds, improperly mixing assets, failing to wean wealthy US clients off its platform, and misleading customers about its controls.
Data firm Nansen said Tuesday morning that investors withdrew about $790 million from Binance and its US affiliates following Monday’s news.
binance Pledge to vigorously defend itself against the lawsuit, which it said reflects the SEC’s “misguided and conscious refusal” to provide clarity to the cryptocurrency industry.
Coinbase’s friction with Gensler dates back to 2021, when the Securities and Exchange Commission (SEC) threatened to sue Coinbase if it would allow users to earn interest by lending digital assets. The company scrapped the idea.
Tuesday’s case is SEC v. Coinbase Inc and Others, US District Court, Southern District of New York, No. 23-04738.
(Reporting by Jonathan Stempel) in New York. Additional reporting by Hannah Lang and Michelle Price in Washington, D.C. and Manya Saini in Bengaluru; Editing by Jason Neely, Louise Heavens, Chizu Nomiyama and Nick Zieminski
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