NEW YORK, June 6 (Reuters) – The U.S. Securities and Exchange Commission sued Coinbase ( COIN.O ) on Tuesday, accusing the largest U.S. cryptocurrency exchange of operating illegally because it failed to register with the regulator in the first place.
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.
“Cryptomarkets undermine that confidence, and I will say this: It undermines our entire capital markets,” Gensler told CNBC on Wednesday.
Paul Grewal, Coinbase’s general counsel, said in a statement that the company will continue to operate as usual.
“The SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset sector harms America’s economic competitiveness and demonstrates a commitment to compliance by companies like Coinbase,” he added.
Shares of Coinbase parent Coinbase Global Inc fell $9.37, or 16.2%, to $49.33, having previously fallen as much as 20.9%.
In a complaint filed in Manhattan federal court, Coinbase has made billions of dollars by acting as an intermediary in crypto transactions since at least 2019, 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.
‘Rules cannot be ignored’
Tuesday’s complaint addressed several aspects of Coinbase’s business, including Coinbase Prime, which sends orders; Coinbase Wallet, which enables investors to access liquidity; and Coinbase Earn staking service.
In the staking program, Coinbase collects crypto assets and uses them to facilitate activity on the blockchain network, offering them to customers in exchange for “rewards” after taking a commission for itself.
The SEC said Coinbase was “fully aware” that its business was subject to federal securities laws, but ignored it.
“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.
Tuesday’s suit seeks civil penalties, disgorgement of ill-gotten gains and injunctive relief. The SEC warned Coinbase in March that securities charges could be coming.
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.
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 promisedstrongly 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.
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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