The United States has charged the country's largest cryptocurrency trading platform with illegal activity, expanding its assault on the industry.
Coinbase, according to the Securities and Exchange Commission, acted without appropriate registration as a broker, exchange, and clearing agency for investments subject to SEC regulations.
This, according to the regulator, permitted the company to avoid oversight, including safeguards against conflicts of interest. Coinbase stated that the regulations are unclear.
Paul Grewal, Coinbase's chief legal officer, stated that legislation that permits the development of transparent and uniformly applied road rules is the solution, not litigation. In the interim, we will continue with business as usual.
The complaint against Coinbase comes a day after the SEC filed a lawsuit against Binance, the largest cryptocurrency trading platform in the world, accusing the company of mishandling customer funds, artificially exaggerating trading volume on the site, and evading US regulation.
Authorities have pledged to aggressively police the industry using existing regulations, arguing that many crypto assets function similarly to other investments that are subject to regulation. After the dramatic collapse of another major exchange, FTX, which left many customers unable to access their funds, efforts to increase scrutiny have increased.
On Tuesday, financial regulators from ten different states, including California and Alabama, filed legal lawsuits against Coinbase, alleging that the company was operating illegally as a securities dealer without having the proper registration.
Gurbir S. Grewal, director of the SEC's division of enforcement, stated that, according to the allegations made in the complaint, Coinbase was aware of the applicability of federal securities laws to its business activities, but made a conscious decision not to comply with these laws.
Coinbase, which was founded in 2012, claims to have more than 100 million customers and daily transaction volumes of digital assets such as Bitcoin worth billions of dollars.
In 2021, at the height of the crypto craze, the company achieved a market value of nearly $100 billion when it went public. Nonetheless, Coinbase's stock price has declined significantly since the decline in cryptocurrency values last year. It is now less than $12 billion.
The company's stock price fell after the lawsuit was launched in New York federal court. Following the lawsuit, customers withdrew a net of nearly $1.3 billion from the platform, as reported by Nansen, a company that monitors crypto flows.
Coinbase had warned in March that the SEC might pursue legal action against the company. It stated that it had repeatedly attempted to work with authorities to register but there was no obvious path for crypto firms to do so. It has also threatened to relocate to London or elsewhere outside the United States. The CEO of the Blockchain Association, an industry group, cited ongoing congressional discussions as evidence that the laws governing the industry remain in disarray and that the SEC had no case.
On the same day that the SEC filed suit against Coinbase, Mr. Grewal was scheduled to testify at a hearing in Washington, D.C., regarding the drafting of legislation to regulate certain categories of digital assets.
In remarks for this hearing, Mr. Grewal stated that Coinbase thoroughly examined assets offered on its platform to determine whether they could be considered SEC-regulated securities. He stated that it did not identify securities and that the "vast majority" of proposals were rejected.