SEC to Coinbase: You’re Making Billions But Failing to Protect Investors

The US Securities and Exchange Commission is going after Coinbase for allegedly facilitating cryptocurrency transactions from millions of consumers while skirting federal oversight.

The SEC on Tuesday sued Coinbase(Opens in a new window) over claims the cryptocurrency trading platform has been operating as a “unregistered national securities exchange, broker, and clearing agency.”   

“Coinbase has for years defied the regulatory structures and evaded the disclosure requirements that Congress and the SEC have constructed for the protection of the national securities markets and investors,” the US regulator says in the court fiiling(Opens in a new window). 

According to the SEC, Coinbase should have registered itself as a broker, national securities exchange, and clearing agency since it engages in all three activities through its cryptocurrency businesses. But the company has neglected to do so, denying investors financial protections, “including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, among others,’ the SEC says.

“While Coinbase’s calculated decisions may have allowed it to earn billions, it’s done so at the expense of investors by depriving them of the protections to which they are entitled,” says SEC Director of  Division of Enforcement Gurbir S. Grewal.

The regulator is now demanding that a federal court force Coinbase to register under US securities laws, and give up the “ill-gotten gains” made from the various violations. However, Coinbase say it’s done nothing wrong, and argues that the rules for crypto-trading are murky. 

“The SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance,” the company said in a statement. “The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation. In the meantime, we’ll continue to operate our business as usual.”

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The lawsuit arrives a day after the SEC sued Binance, another major cryptocurrency trading platform from China. The SEC accuses(Opens in a new window) Binance of similar offenses, but also alleges that the cryptocurrency trading platform tried to deceive regulators about its operations in an effort to attract US users and maximize profits. 

Like Coinbase, Binance claims the SEC is resorting to unfair litigation when the market needs clearer rules when it comes to cryptocurrencies. “Digital asset laws remain largely undeveloped in much of the world, and regulation by enforcement is not the best path forward. An effective regulatory framework demands collaborative, transparent, and thoughtful policy engagement—a path the SEC has abandoned,” Binance said in a statement(Opens in a new window).

“All user assets on Binance and Binance affiliate platforms, including Binance.US, are safe and secure, and we will vigorously defend against any allegations to the contrary,” it added.

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