NEW YORK, June 6 (Reuters) – The U.S. Securities and Exchange Commission on Tuesday sued Coinbase ( COIN.O ), the largest U.S. cryptocurrency platform, accusing it of operating illegally after failing to register as an exchange. .
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 SEC Chairman Gary Gensler’s effort to assert jurisdiction over the crypto sector, which he again on Tuesday dubbed the “Wild West” that has undermined investor confidence in US capital markets.
“The entire business model is built on non-compliance with US securities laws, and we’re asking them to comply,” Gensler told CNBC.
Crypto companies say SEC rules are unclear and the agency is overreaching by trying to regulate them.
Coinbase suffered about $1.28 billion in net customer outflows following the lawsuit, according to preliminary estimates from data firm Nansen.
Paul Grewal, Coinbase’s general counsel, said in a statement that the company will continue to operate as usual and has “demonstrated a commitment to compliance.”
Ten US states Led by California Coinbase on Tuesday accused its staking rewards program of violating securities laws.
Shares of Coinbase’s parent company, Coinbase Global Inc, fell $7.10, or 12.1%, to $51.61, down 20.9% from earlier. They are up 46% this year.
‘Rules cannot be ignored’
In a complaint filed in Manhattan federal court, the SEC alleged that Coinbase has operated as an intermediary in crypto transactions since at least 2019, making billions of dollars 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.
In its Staking Rewards program, which has about 3.5 million customers, Coinbase collects crypto assets and uses them to support operations on the blockchain network, offering them to customers in exchange for “rewards” after buying a commission.
States focused on the program include Alabama, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington and Wisconsin. New Jersey was fined Coinbase $5 million for selling unregistered securities.
The SEC’s filing on Tuesday seeks civil penalties, ill-gotten gains and injunctive relief. The SEC warned Coinbase in March that charges could be coming.
“You can’t just ignore the rules because you don’t like them,” said SEC enforcement chief Gurbir Grewal, who is not related to Paul Grewal.
Resistance to segmentation crackdown
Gensler’s crackdown on crypto has prompted the industry to increase compliance, stack products and expand outside the country.
Christine Smith, CEO of the Blockchain Association trade group, dismissed Gensler’s efforts to oversee the industry.
“We hope the courts will prove Chairman Gensler wrong in due course,” he said.
On Monday, the SEC accused Binance of inflated trading volumes, diverted client funds, improperly pooled assets, failed to keep wealthy US clients off its platform and misled clients about its regulations.
Finance promised It was aggressive in defending itself against the lawsuit, which it said reflected the SEC’s “wrongful and conscious refusal” to provide clarity to the crypto industry.
Customers received about $790 million from Binance and its U.S. subsidiary following the lawsuit, Nansen said.
On Tuesday, the SEC filed a request for an asset freeze in the Binance case.
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.
Tuesday’s 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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