For the second time in 24 hours, the US Securities and Exchange Commission has sued a major cryptocurrency exchange. Yesterday, the regulator filed suit against Binance and its CEO, Changpeng Zhao, alleging manipulative trading practices, mishandling of client assets and the company’s failure to control. Today, the SEC filed a lawsuit against Nasdaq-listed exchange Coinbase, alleging that it violated securities laws.
The double salvo sends a clear signal that the SEC is hunting crypto. The result of this could be US investors losing access to popular crypto assets.
“We are reaching a final state where if current regulatory action in the US continues unchecked, you will effectively ban most crypto activity in the US,” said Omid Malekan, an adjunct professor at Columbia Business School and author of Rebuilding Trust: The Curse of History and the Crypto Cure for Money, Markets and Platforms.
The SEC’s latest complaint doubles down on the long-standing claim that many crypto tokens are simply securities as defined under existing laws in the US. That means they fall under his authority, says the regulator. Based on that interpretation, the lawsuit, filed in the Southern District of New York, accuses Coinbase of knowingly operating an unregistered stock exchange by selling tokens, including Sol, Ada, and Matic, to U.S. investors. The SEC is also accusing Coinbase of violating securities laws in connection with its staking service, which allows customers to make a profit on certain crypto holdings by pooling and locking them up.
“You just can’t ignore the rules because you don’t like them or because you prefer others: the consequences for the investing public are far too great,” said Gurbir S. Grewal, director of the SEC’s enforcement division. in a public statement. “Coinbase was fully aware of the applicability of federal securities laws to its business activities, but deliberately refused to follow them.”
Like Binance yesterday, Coinbase turned the finger of blame back at the regulator, claiming that the SEC had failed to chart a path to compliance for crypto companies. “The SEC’s reliance on an enforcement-only approach, in the absence of clear regulations for the digital asset industry, harms America’s economic competitiveness,” said Paul Grewal, the company’s chief legal officer. Coinbase has “demonstrated a commitment to compliance,” he claims, and will continue to operate as usual while defending itself against the complaint.
This tension — over the interpretation of existing securities laws and whether they apply to crypto — will be at the heart of the upcoming case, says Noelle Acheson, an independent crypto analyst. “It’s very exciting,” says Acheson.
With the filings against Coinbase and Binance, the SEC has now formally claimed that seven of the top 15 largest cryptocurrencies are securities. Bitcoin is considered an exception and the SEC has not issued a clear verdict on Ether, but the agency “appears to be using a broad rubric to classify these tokens as securities,” says Molly White, author of crypto-skeptic blog Web3 is just going great.
