Washington, D.C., June 6, 2023 — In a recent development, the Securities and Exchange Commission (SEC) has taken legal action against Coinbase Inc. The SEC has accused Coinbase of unlawfully operating its cryptocurrency trading platform without being registered as a national securities exchange, broker, or clearing agency. Furthermore, Coinbase has also been charged with failing to register its crypto asset staking-as-a-service programme, which involves the offer and sale of these assets.
As per the complaint filed by the SEC, it has been revealed that Coinbase has been involved in illicit activities by enabling the purchase and sale of crypto asset securities, resulting in billions of dollars in revenue. The SEC asserts that Coinbase has combined the roles of an exchange, broker, and clearing agency within its operations. However, Coinbase has failed to comply with the legal requirement of registering these functions with the Commission, as mandated by law.
According to the complaint lodged by the SEC, Coinbase’s failure to register has resulted in investors being deprived of essential safeguards and protections. These include critical measures such as SEC oversight, mandatory recordkeeping obligations, and safeguards against potential conflicts of interest.
Furthermore, the complaint filed by the SEC asserts that Coinbase’s parent company, Coinbase Global Inc. (CGI), serves as a controlling entity over Coinbase. As a result, the SEC contends that CGI is also responsible and accountable for specific violations committed by Coinbase. The allegations put forth by the SEC implicate CGI’s liability in relation to certain regulatory infractions committed by Coinbase.
According to the complaint lodged by the SEC in the U.S. District Court for the Southern District of New York, Coinbase and CGI have been accused of violating specific registration requirements outlined in the Securities Exchange Act of 1934. Additionally, Coinbase has been alleged to have violated the provisions related to securities offering registration as stipulated in the Securities Act of 1933. The complaint seeks various forms of legal action, including injunctive relief, the disgorgement of unlawfully obtained profits along with interest, the imposition of penalties, and other equitable remedies.
The SEC seeks additional time to respond.
The securities regulator has committed to making a recommendation within a 120-day timeframe regarding Coinbase’s request for rulemaking. This means that the regulator has set a deadline of 120 days to review Coinbase’s request.
In a letter dated June 13 and submitted to the U.S. Court of Appeals for the Third Circuit, the Securities and Exchange Commission (SEC) has expressed its need for an extra 120 days to respond to Coinbase’s appeal for the adoption of new rules and enhanced clarity on cryptocurrency-related laws.
The letter was in response to the court’s June 6 order to the SEC, which asked the regulator to address whether it’s denying the rulemaking or if it needs more time to respond.
The regulatory body stated that it believes the mandamus petition should be rejected, but it expects to provide a recommendation on Coinbase’s rulemaking petition within the coming 120 days.
Coinbase’s Chief Legal Officer, Paul Grewal, took to Twitter to share his response to the SEC’s letter. According to Grewal, he informed his 40,000 Twitter followers that the SEC has once again reiterated the misconception that it has not made any decisions regarding new regulations. Grewal referred to this notion as a “fallacy” and expressed his disagreement with the SEC’s stance on the matter.
He added that the letter ignored clear statements from SEC Chair Gary Gensler that the SEC has “no intent to issue new rules.”
“[The SEC] instead conflates the evidence of a decision those statements provide with an argument that the statements are themselves a decision,” Grewal said.
“They refuse to commit to any deadline despite the Court’s explicit order,” Grewal added.