Press Release:
Coinbase also charged for the unregistered offer and sale of securities in connection with its staking-as-a-service program.
FOR IMMEDIATE RELEASE
Washington D.C., June 6, 2023 — The Securities and Exchange Commission (SEC) has taken action against Coinbase, Inc., charging the leading cryptocurrency exchange for operating as an unregistered national securities exchange, broker, and clearing agency. Additionally, Coinbase is facing charges for failing to register the offer and sale of its crypto asset staking-as-a-service program.
Unregistered Exchange, Broker, and Clearing Agency
The SEC's complaint alleges that Coinbase has unlawfully facilitated the buying and selling of crypto asset securities, generating billions of dollars in revenue since at least 2019. Coinbase is accused of combining the functions of an exchange, broker, and clearing agency without obtaining the necessary registration from the SEC as mandated by law. Through its unregistered services, Coinbase is alleged to have:
Provided a marketplace that brings together multiple buyers and sellers of securities, utilizing established and non-discretionary methods for order interaction.
Engaged in the business of effecting securities transactions on behalf of Coinbase customers.
Provided facilities for the comparison of data related to the settlement of crypto asset securities transactions, acting as an intermediary in settling transactions and serving as a securities depository.
The SEC's complaint emphasizes that Coinbase's failure to register has deprived investors of essential protections, including SEC inspection, recordkeeping requirements, and safeguards against conflicts of interest, among others. Furthermore, the complaint asserts that Coinbase's holding company, Coinbase Global Inc. (CGI), is also liable for certain violations committed by Coinbase.
Unregistered Offer and Sale of Securities in Connection with Staking-as-a-Service Program
In addition to the charges related to its exchange and brokerage activities, Coinbase is accused of engaging in an unregistered securities offering through its staking-as-a-service program. This program allowed customers to earn profits through the "proof of stake" mechanisms of select blockchains. Coinbase allegedly pooled customers' stakeable crypto assets, performed blockchain transaction validation services, and distributed a portion of the rewards to participating customers. However, Coinbase failed to register the offer and sale of this staking program as required by law.
SEC Chair Gary Gensler commented on the allegations, stating, "We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions. In other parts of our securities markets, these functions are separate. Coinbase's alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC."
Gurbir S. Grewal, Director of the SEC's Division of Enforcement, emphasized the importance of adhering to regulations, stating, "You simply can't ignore the rules because you don't like them or because you'd prefer different ones: the consequences for the investing public are far too great." Grewal added, "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. Today's action seeks to hold Coinbase accountable for its choices."
The SEC's complaint, filed in the U.S. District Court for the Southern District of New York, accuses Coinbase and Coinbase Global Inc. of violating registration provisions under the Securities Exchange Act of 1934. Coinbase is also charged with violating securities offering registration provisions outlined in the Securities Act of 1933. The complaint seeks various forms of relief, including injunctive measures, disgorgement of ill-gotten gains.
The information in this press release is sourced directly from the official Securities and Exchange Commission (SEC) page, ensuring its credibility and authority.
