In another blow to the crypto sector, two of the biggest players were sued by the Securities and Exchange Commission this week. The agency sued Binance, the world’s largest exchange, on Monday, and the only public exchange, Coinbase, the next day. A U.S. listed exchange is accused of violating securities laws.
SEC Chairman Gary Gensler has long argued that most crypto tokens are securities and therefore fall under the jurisdiction of the SEC. Many digital asset enthusiasts, including some regulators and lawmakers, argue Gensler has gone too far.
There are notable parallels in this week’s events. The SEC has accused both Binance and Coinbase of operating stock exchanges and selling digital assets that should have been registered. However, while the SEC also accuses CEO Zhao Changpeng of civil fraud in the lawsuit against Binance, it does not allege fraud in the lawsuit against Coinbase, and the company’s chief executive It did not name Brian Armstrong as a defendant.
Here’s what we know so far about the SEC’s crackdown on cryptocurrency activity.
The SEC has accused Coinbase of acting as an unregistered broker.
The SEC said Coinbase has made billions of dollars by promoting the sale of crypto assets as an unregistered exchange and depriving investors of vital protection. The agency said most crypto products are no different from stocks, bonds, or other securities, and companies that offer them must register with the agency and make accompanying disclosures, just like traditional exchanges and brokerage firms. claims that there is
Coinbase and the SEC have had a lengthy public feud over the SEC’s stance on digital assets. Last year, Coinbase petitioned the SEC for new rules, and in April sued the SEC for failing to comply with the petition.
The company has lobbied Congress to enact legislation. Coinbase Chief Legal Officer Paul Gruwal testified before the House Agriculture Committee on Tuesday about the draft bill that was unveiled last week, saying the rule “clarifies not just theory but practice.” “The solution is legislation, not litigation,” Grewal added.
Binance has come under fire for about a dozen securities-related charges.
Binance is accused of pouring billions of dollars in client funds into a company owned separately by Mr. Zhao. The SEC indicted Zhao as well as the company, and accused Binance of about a dozen other violations, including misleading investors about the adequacy of a system to detect and manage manipulative trading.
In addition to these charges, Binance, like Coinbase, is also accused of operating an unregulated exchange and issuing a cryptocurrency that authorities say should have been registered as a security. Among them was a proprietary token traded as BNB. 10 other popular tokens.binance deny the charges. On Tuesday, the SEC sought a preliminary order in federal court. Binance Freezes US Assets.
The Commodity Futures Trading Commission also accused Binance in March of violating the Commodity Law.
What about FTX?
The accusation of mismanagement of customer funds against Binance is somewhat reminiscent of the charges brought against crypto exchange FTX and its founder Sam Bankman-Fried late last year. But Bankman-Fried, unlike Cho, faces fraud, conspiracy, and campaign finance violations.
Prosecutors said Bankman-Fried siphoned billions of dollars in FTX client money into his trading firm Alameda Ventures, which used the stolen funds in risky and highly leveraged bets.
what happens next?
Binance said the SEC is trying to “unilaterally define the cryptocurrency market structure.” High-profile enforcement actions In a posting on its website on Monday, the company vowed to “vigorously defend our platform.”
Coinbase likewise said it intends to fight back and will continue to lobby Congress for new legislation. Businesses hope cryptocurrency legislation will help remove the blemish of recent scandals and legitimize an industry known for its lawlessness.
However, not all lawmakers share such a sense of crisis, and regulations may be delayed. Enforcement actions may be taken before the bill is passed, leaving hotly contested issues to federal courts.
From an industry perspective, that indirect path may work out in the end. The Supreme Court intends to limit the powers of government agencies, and crypto lobbyists are well aware of the implications. In their next term, judges will revisit principles that currently require courts to follow the expertise of government agencies, which could further constrain executive powers.
Sheila Warren, chief executive of the Crypto Council for Innovation, a Washington lobbying group representing Coinbase, said: We are witnessing a potential change in the range of others. She added, “It’s going to be tough.”
