The regulator alleges that Coinbase, which has serviced over 108 million customers, accounting for billions of dollars in daily trading volume in crypto assets, and has never registered with the SEC as a broker, national securities exchange, or clearing agency, “thus evading the disclosure regime that Congress has established for our securities markets.”
Similar to its claims against Binance, the SEC said that Coinbase has used its unregulated status to earn billions of dollars in revenues via collecting transaction fees from investors, adding that “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.”
“These trading platforms -- they call themselves exchanges -- are commingling a number of functions,” SEC chair Gary Gensler said on CNBC Tuesday. “We don't see the New York Stock Exchange operating a hedge fund,” he said -- adding that “we don't need more digital currency. We already have digital currency. It's called the U.S. dollar, it's called the Euro, it's called the Yen. They are all digital right now…so what is the real underlying value of these tokens?”
At least thirteen crypto assets available to Coinbase customers were listed as “crypto asset securities” by the SEC, including Solana's SOL token, ADA, MATIC, FIL, SAND and AXS. Bitcoin and Ethereum -- the two largest cryptocurrencies in the market -- were not mentioned.
“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,” said Paul Grewal, chief legal officer and general counsel of Coinbase. “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.”
Due to its advertising efforts, Coinbase is often thought of in the crypto community as sophisticated and a safer, regulated option compared to other exchanges. The SEC has now used that message against the exchange, due to its potential to lure new investors into a risky trading environment.
Gensler also said that the SEC is focused on bringing investors and issuers in the crypto space into compliance. “We brought a number of actions. We stand ready to continue to work with the industry.”
Coinbase's shares fell 13% in Tuesday afternoon trading after having already fallen 9% on Monday, after the SEC's charges against Binance and founder Changpeng Zhao.