Quick overview of the original text: What are the two charges recently brought by the U.S. SEC against Coinbase?
The SEC accuses Coinbase of operating as an unregistered securities exchange, broker, and clearing agency; Coinbase also charges fees for the offering and sale of unregistered securities related to its staking-as-a-service program.Source: U.S. SEC Official Website
Editor: ChainCatcher
The U.S. Securities and Exchange Commission (hereinafter referred to as "SEC") today charged Coinbase, Inc. with operating its cryptocurrency asset trading platform as an unregistered national securities exchange, broker, and clearing agency. The SEC also charged Coinbase with failing to register its offers and sales of its cryptocurrency asset staking-as-a-service program.
Unregistered Exchanges, Brokers, and Clearing Agencies
According to the complaint by the SEC, Coinbase has earned billions of dollars by illegally facilitating the buying and selling of cryptocurrency asset securities at least since 2019. The SEC claims that Coinbase intertwined the traditional services of exchanges, brokers, and clearing agencies but did not register any of these functions with the Commission as required by law. It is alleged that through these unregistered services, Coinbase:
- Provides a market and uses established, non-discretionary methods to aggregate the securities orders of multiple buyers and sellers, which interact under these orders;
- Engages in the business of trading securities for the accounts of Coinbase customers;
- Facilitates the comparison of data regarding the settlement terms of cryptocurrency asset securities transactions, acts as an intermediary for Coinbase customers settling cryptocurrency asset securities transactions, and serves as a securities custodian.
As stated in the SEC's complaint, Coinbase's failure to register has deprived investors of important protections, including SEC oversight, recordkeeping requirements, and safeguards against conflicts of interest.
The SEC's complaint also states that Coinbase's parent company, Coinbase Global Inc. (CGI), is the controlling entity of Coinbase and therefore should also be held accountable for certain violations by Coinbase.
Unregistered Securities Offerings and Sales Related to Staking-as-a-Service Program
The SEC alleges that since 2019, Coinbase has been conducting unregistered securities offerings through its staking-as-a-service program, which allows customers to earn rewards from the "proof of stake" mechanisms of certain blockchains and Coinbase's efforts. It is alleged that through this staking program, Coinbase aggregates the stakable cryptocurrency assets of each type of customer, stakes the pool to perform blockchain transaction validation services, and provides a portion of the rewards generated from this work to customers whose assets belong to the pool. Coinbase failed to register its offers and sales related to this staking program as required by law.
SEC Chairman Gary Gensler stated, "We charge Coinbase with mixing and illegally providing exchange, broker-dealer, and clearinghouse functions despite being bound by securities laws." "In other parts of our securities markets, these functions are separate. Coinbase's so-called failures have deprived investors of important protections, including the rules against fraud and manipulation, proper disclosures, safeguards against conflicts of interest, and the SEC's routine oversight. Furthermore, as we allege, Coinbase has never registered its staking-as-a-service program as required by securities laws, again depriving investors of important disclosures and other protections."
"You cannot ignore these rules simply because you dislike them or prefer different rules: the consequences for the investing public are too great," said Gurbir S. Grewal, Director of the SEC's Enforcement Division. "As we allege in the complaint, Coinbase was fully aware of the applicability of federal securities laws to its business activities but willfully chose not to comply. While Coinbase's carefully crafted decisions may have earned it billions of dollars, it did so at the expense of investors, depriving them of the protections they deserve. Today's action is intended to hold Coinbase accountable for its choices."
The complaint filed by the SEC in the U.S. District Court for the Southern District of New York alleges that Coinbase and CGI violated certain registration provisions of the Securities Exchange Act of 1934, and Coinbase also violated the registration provisions for securities offerings under the Securities Act of 1933. The complaint seeks injunctive relief, disgorgement of illegal profits plus interest, fines, and other equitable relief.
The SEC's investigation was conducted by Serafima McTigue, Erin E. Wilk, Amy Mayer, Joy Guo, Elizabeth Goody, and Derek Kleinmann of the Enforcement Division's Crypto Assets and Cyber Unit, with assistance from Ellen Chen in the San Francisco Regional Office. It was supervised by Steven Buchholz, Jorge G. Tenreiro, and David Hirsch of the Crypto Assets and Cyber Unit, as well as Danielle Voorhees, Nicholas Heinke, and Jason Burt of the Denver Regional Office. The SEC's litigation will be led by Nick Margida, Peter Mancuso, and Ben Kuruvilla, and supervised by Ladan Stewart, Jorge G. Tenreiro, and Olivia Choe.
The SEC thanks the multi-state task force of ten state securities regulators led by California, which also includes Alabama, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin, for their assistance.
