SEC continues to sue crypto firms left, right, and centre.
The lawsuit centers around the accusation that Coinbase has been selling unregistered securities, a claim that has recently shaken the cryptocurrency market.
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As the SEC claims, Coinbase has allegedly been operating without the required legal status of a broker, a national securities exchange, or a clearing agency. This has purportedly allowed the company to evade the necessary disclosure processes governing securities markets.
The SEC points towards several tokens that Coinbase offers, such as Filecoin (FIL), Solana (SOL), Near (NEAR), Cardano (ADA), Chiliz (CHZ), The Sandbox (SAND), Polygon (MATIC), Voyager Token (VGX), Axie Infinity (AXS), Internet Computer (ICP), Dash (DASH), Flow (FLOW), and Nexo (NEXO), suggesting that these qualify as securities.
Further allegations from the SEC claim that Coinbase has been functioning as an unregistered securities broker since 2019. This is particularly significant as this period includes nearly two years leading up to Coinbase's initial public offering in April 2021.
The SEC is especially concerned about Coinbase's staking program, alleging that it operates as an investment contract, thus making it a security.
Coinbase has been contesting this point, arguing that its staking products do not fall under the category of securities. This is even though Kraken, another cryptocurrency exchange, recently settled similar issues with the SEC and ceased its staking services in the United States.
It is worth noting that, in March, SEC issued a Wells Notice to Coinbase.
Gary Gensler, SEC Chair, commented on the case against Coinbase, alleging that the cryptocurrency exchange has deprived its customers of essential protections designed to prevent fraud and manipulation. He added that the firm had avoided proper disclosure and safeguards against potential conflicts of interest.
Gurbir Grewal, the director of the SEC’s Division of Enforcement, voiced his position, stating:
As alleged in our complaint, Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them.
The case against Coinbase is a clear signal of increasing scrutiny within the crypto industry, a trend that is likely to continue as digital assets become more mainstream.