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The United States Securities and Exchange Commission (SEC) is tightening its regulatory grip over the crypto industry. Now, the SEC charged the leading crypto exchange in the US, Coinbase. The clamping on over the burgeoning asset class has been brutal, as now the major players in the industry are being preyed upon. The impact of the news spread like wildfire—Coinbase Global (NASDAQ: COIN) stock price fell 15% in premarket trade, in the blink of an eye.
The SEC took to Twitter and announced charging Coinbase Inc. In an official press release, the regulator alleges the crypto exchange for operating as an “unregistered national securities exchange, broker, and clearing agency.” It added that the trading platform has not registered with the regulator prior to offerings and sale of cryptocurrencies under its staking-as-a-service program.
Today we charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency and for failing to register the offer and sale of its crypto asset staking-as-a-service program.https://t.co/XPG2gDkxtV pic.twitter.com/hCdVMw8B2v
— U.S. Securities and Exchange Commission (@SECGov) June 6, 2023
SEC Chair Alleges Coinbase to be Unregistered Broker
SEC Chair Gary Gensler stated, “We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions.”
Gensler added that unlike Coinbase, other securities markets keep these functions separate. The alleged failures of crypto exchange kept the investors unaware of “critical protections” such as prevention from fraud and manipulation, disclosing clauses properly, safeguarding incase of conflicts of interest, and routine SEC inspection.
Further, the SEC Chair alleged that Coinbase had not registered its staking-as-a-service program under the existing securities laws. This was also a violation of “critical disclosure and other protections” of investors.
Coinbase (COIN) Stock Steep Fall in Pre-Market Session
Immediately after the news broke, the stock price of the only publicly traded crypto exchange started falling downwards. COIN stock fell up to 18% in the pre-market session. Sellers overwhelmed the market, eliminating the buyers’ dominance. The stock price nosedived from trading price of 58.70 USD to 48.31 USD, in the pre-market.
Continued Tussle B/w SEC and Coinbase
Coinbase attempted to engage the SEC over issues related to crypto regulations and enforcement in the crypto industry. The crypto firm petitioned to the financial watchdog for clarity on crypto regulations, however did not get a response.
The SEC has been accused of arbitrary enforcement and refusing to offer regulatory clarity.
With increasing scrutiny and enforcement in the crypto space, especially in the wake of last year’s FTX implosion, the SEC went after multiple crypto companies. Crypto exchange Kraken was accused of offering unregistered crypto staking services and had to pay a fine of $30 Million in the contingency.
Coinbase was among those entities that opposed the regulatory action against staking services. The company warned that it would take legal actions if similar legal actions would be taken against it.
It seemed like the ice was melting, until the crypto firm received a Wells notice from the regulator. Now the story has taken an unanticipated but an interesting turn. With the SEC taking legal actions against crypto entities, especially the major ones, volatility is sure to increase in the market.
At press time, there was no official statement or response from Coinbase or executives.