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In addition to the SEC’s lawsuit against Coinbase — which was filed Tuesday morning — 10 states announced a show cause order against Coinbase.
“The order gives Coinbase 28 days to show cause why they should not be ordered to cease and desist from selling unregistered securities in Alabama,” the Alabama Securities Commission wrote.
Securities regulators from California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington and Wisconsin are also part of the state task force.
The show cause order from Alabama alleges that Coinbase “violates the securities law by offering its staking rewards program accounts to Alabama residents without a registration to offer or sell these securities.”
It goes on to claim that the “3.5 million staking rewards program accounts nationwide are not insured by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC),” which means that investors are not protected from losses.
Coinbase’s staking program offers five crypto assets including XTZ, ATOM, ETH, ADA and SOL.
The SEC pinpointed Coinbase’s staking program in its lawsuit, claiming that, “the Staking Program includes five stakeable crypto assets, and the Staking Program as it applies to each of these five assets is an investment contract, and therefore a security.”
Read more: SEC Sues Coinbase: Here’s What They Allege Coinbase Did Wrong
“At all relevant times, the Coinbase Staking Program, as it applied to each of the five stakeable assets, was an investment contract under Howey, and therefore a security, whose offers and sales were subject to registration under the Securities Act,” the suit goes on to say.
The SEC’s lawsuit also alleges that Coinbase listed and sold unregistered securities.
Coinbase did not immediately respond to a request for comment.