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The U.S. Securities and Exchange Commission (SEC) has taken another step in its regulatory offensive against the cryptocurrency industry by targeting Coinbase, one of the leading cryptocurrency exchanges.
This move comes just a day after the SEC filed a lawsuit against Binance, another major player in the crypto market. In a press release, the SEC announced that it charges Coinbase for operating as an unregistered securities exchange, broker, and clearing agency.
Furthermore, the SEC alleges that Coinbase failed to register its crypto asset staking-as-a-service program, adding another violation to the list. According to the SEC’s extensive 101-page complaint, the crypto assets offered on Coinbase’s various platforms, including Coinbase Platform, Coinbase Prime, and Coinbase Wallet services, are classified as “crypto asset securities.” As a result, these assets fall squarely within the purview of existing securities laws and regulations.
Coinbase and other industry participants have been urging U.S. officials to provide clearer regulatory guidelines to navigate the rapidly evolving crypto landscape.
However, the SEC claims that Coinbase has been well aware since at least 2016 that the Supreme Court’s landmark decision in SEV v. W.J Howey Co. from 1946 provides a framework for determining whether a crypto asset should be considered an investment contract and subjected to securities laws.
The SEC specifically refers to the “Howey Test,” derived from the aforementioned legal case, which establishes a four-prong criterion for assessing whether a transaction qualifies as an investment contract. According to the SEC, Coinbase has disregarded the Howey Test to maximize profits.
Despite Coinbase’s previous assertions of being a compliant actor in the crypto asset space, the SEC accuses the exchange of prioritizing its financial interests over those of investors and compliance with the law.
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The regulatory framework governing the securities markets, established to safeguard investors and the U.S. capital markets, has allegedly been overlooked by Coinbase.
The Commission’s complaint highlights Coinbase’s marketing campaign that touted its efforts to analyze crypto assets under the standards set forth in the Howey Test before making them available for trading.
In response to Coinbase’s alleged violations, the SEC seeks various relief forms. This includes imposing civil money penalties on the exchange and disgorgement of its “ill-gotten gains” along with prejudgment interest. Both Binance and Coinbase, the two largest cryptocurrency exchanges in the world by trading volume, are embroiled in legal battles with the SEC, which has created significant turbulence in the crypto market.
The impact of these developments has already been felt, as Coinbase’s shares (COIN) plummeted by 21% following the news. The ongoing legal challenges and regulatory scrutiny faced by major players in the crypto industry have raised concerns and uncertainty among investors, contributing to market volatility.