On June 6, the U.S. Securities and Exchange Commission (SEC) indicted It sued Coinbase, accusing the company of violating securities regulations.
These are the most notable takeaways from these claims.
1. Coinbase operates as an unregistered broker
The SEC said Coinbase’s primary trading platform has operated as an unregistered broker, exchange and clearing house since 2019. It also said its Prime and Wallet services have also operated as unregistered brokers since then.
Coinbase’s profits are also uplifted in the lawsuit. The SEC said Coinbase derives billions of dollars worth of revenue from transaction fees, arguing that Coinbase puts its own revenue ahead of investors’ interests and compliance with the law.
2. The body of the lawsuit is primarily about third-party listings
The SEC said Coinbase provided access to existing cryptocurrency securities. Coinbase is said to be “fully within the bounds of securities law.”
Those tokens are Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), The Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), FLOW (FLOW), Internet Computer Protocol (ICP). ), Near Protocol (NEAR), Voyager (VGX), Dash (DASH), NEXO (NEXO).
Over 40 pages of the 101-page application are intended to prove that these tokens are securities. These pages barely mention Coinbase, other than the fact that they list the tokens above. This means that Coinbase’s actions are not the only ones involved in this case.
3. Staking service is a security service
The SEC said Coinbase’s staking service is itself a sale and offering of unregistered securities. Coinbase sells its staking service as an investment opportunity, earns profits from the service, gives users an expectation of profit, and otherwise meets the necessary conditions for this product to be considered a security. was
Coinbase changed its staking model in March, beginning to anticipate that the SEC would target offering staking in early 2023. The SEC confirmed the change by citing relevant filings, but had no other comment.
4. Coinbase’s Crypto Rating Council Backfired
Although Coinbase has been in operation since 2012, the SEC lawsuit text considers Coinbase’s activities after 2019 to be the “relevant period” for the allegations.
This period appears relevant as Coinbase has significantly increased listings since 2019. By the end of 2020, the number of listings had nearly doubled.
These listings were driven by the 2019 launch of the Coinbase-led Crypto Rating Council (CRC). Coinbase used the CRC framework to determine which cryptocurrencies are eligible for listing. It also used this information to take precautionary measures, asking one potential listing candidate to amend its “securities-related” language.
However, the SEC said these actions indicated that Coinbase had listed coins that it recognized had the nature of securities. So the compliance effort backfired.
5. Coinbase’s stock listing is useless for litigation
The SEC said it had approved a public offering by Coinbase’s parent company, CGI. The company’s shares began trading as COIN on April 14, 2021.
Coinbase executives have repeatedly said that the successful listing of the stock is a sign of SEC approval. recent tweets In it, CEO Brian Armstrong said the SEC “reviewed our business and allowed us to go public in 2021.”
The SEC countered this, saying that approval to sell shares was not an “opinion or approval of the legality of the issuer’s underlying business.” In addition, CGI said it was aware of securities-related risks in previous stock filings.
6. The claims only partially resemble the Binance case
The SEC charges against Coinbase are similar in some ways to those against Binance. Regulators similarly accused Binance of failing to register. That complaint also included a large section on listing third-party cryptocurrencies.
However, the SEC also claimed that Binance and its US peers did not allow users to circumvent geoblocking, commit fraud, allow wash trading, and separate US and global operations. The SEC has not filed a similar allegation against Coinbase.
The SEC has also directly indicted and named Binance CEO Changpeng Chao as a defendant. It did not indict Coinbase executives in related cases.
7. SEC seeks injunctions and fines
The SEC said it seeks to prohibit (or prevent) Coinbase and its members from violating securities and exchange laws.
The regulator also said it wants Coinbase to be stripped of its ill-gotten gains and ordered to pay civil penalties. It also left room for further bailouts. There is no mention of how much Coinbase may be paid in penalties or disgorgement.
It is unclear what impact these fees and requests will have on Coinbase’s day-to-day operations. Coinbase has repeatedly said it intends to fight the SEC in court.
