The SEC Is Suing Coinbase — Shares Are Plunging

What happened

Shares of Coinbase (COIN -13.87%) are trading nearly 14% lower as of 10:36 a.m. ET today after the Securities and Exchange Commission (SEC) announced it is suing the large U.S.-based crypto exchange.

So what

A day after suing the world’s largest crypto exchange, Binance, on 13 different charges, the SEC continued its crypto crackdown by suing Coinbase. The news isn’t entirely a surprise, considering the SEC issued a Wells notice to Coinbase earlier this year.

The SEC is alleging that Coinbase is running an unregistered securities exchange through its crypto trading operations and that the exchange did not register its crypto staking program with the SEC. Furthermore, the SEC claims that Coinbase has earned billions since 2019 by “unlawfully facilitating the buying and selling of crypto asset securities.” 

“We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions,” SEC chair Gary Gensler said in a statement. “In other parts of our securities markets, these functions are separate. Coinbase’s alleged 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.”

The lawsuit continues what has been an ongoing battle between the crypto industry and the SEC over whether cryptocurrencies are considered securities and therefore must be registered with and overseen by the SEC.

Most crypto proponents believe that cryptocurrencies should be treated as commodities and regulated by the Commodity Futures Trading Commission.

Now what

Clearly, the SEC means business right now, so it’s hard to know just how bad the ramifications of the lawsuit could be for the company. Until there is more clarity, I plan to avoid the stock.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Coinbase Global. The Motley Fool has a disclosure policy.