Recently, the U.S. Securities and Exchange Commission (SEC) sued U.S crypto exchange Coinbase (COIN) on account of violating federal securities law, a day after filling the same suit against Binance.
In accordance with SEC Coinbase has operated as an unregistered broker, exchange and clearing agency simultaneously, arguing that it solicited customers, handled orders, allowed for bids and acted as an intermediary all at once. The US regulator mentioned recently that San Francisco-based Coinbase “has never registered” with the regulator as a broker, national securities exchange or clearing agency.
However, the agency’s move comes a day after it disclosed a wide-ranging case against Binance, accusing the world’s largest crypto exchange of violating 13 securities laws including allegations that it mixed billions of dollars of customer cash with a separate company owned by its chief executive.
” The coinbase platform lumped three core functions that are detached in traditional secrutiy markets those of brokers, exchanges, and clearing agencies,” the SEC suit said. “Yet, Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency, thus evading the disclosure regime that Congress has established for our securities markets.””In a recent press statement , SEC Chair Gary Gensler said these different functions were “combined.”
“Coinbase’s so- called failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC,” he maintained. SEC maintained that since 2019, Coinbase has operated as an unregistered broker through its Coinbase exchange platform, its prime brokerage and crypto wallet service, which stores customers’ funds on their behalf.
“Coinbase has carried out these functions despite the fact that the crypto assets it has made available for trading on the Coinbase Platform, Prime, and Wallet have included crypto asset securities, thus bringing Coinbase’s operations squarely within the purview of the securities laws,” the SEC said.
It added that the US company has been “paying lip service to its desire to comply with applicable laws” but instead allowed trading of products “that are investment contracts under the Howey test and well-established principles of the federal securities laws”.