SEC Charges Coinbase With Operating as an Unregistered Broker

Today, the SEC released a press release stating that it had charged Coinbase with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency.

🔙 Back It Up

In March, the SEC issued a Wells notice to Coinbase, centered around the crypto exchange's staking service and asset listings. At the time, CEO Brian Armstrong noted that a Wells notice typically precedes an enforcement action. Now, the SEC is back to finish what it started, and the government agency's ongoing gripes with Coinbase have devolved into the lawsuit that was filed today.

The Deets

• The news comes a day after the SEC charged Binance with multiple securities law violations.
• The SEC alleges that Coinbase intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law.
• The SEC also charged Coinbase for failing to register the offer and sale of its crypto asset staking-as-a-service program.
• Coinbase, Inc. and Coinbase Global, Inc. were both named as defendants, but founder and CEO Brian Armstrong was not (in contrast to the Binance suit, as in this case the SEC did not assert that Coinbase had commingled customer funds).
• Ten U.S. states also took legal action against Coinbase for violating securities laws: Alabama, California, Kentucky, Illinois, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin.
• The SEC is classifying Solana (SOL), Cardano (ADA), Polygon (MATIC), Sandbox (SAND), Filecoin (FIL), Axie Infinity (AXS), Chiliz (CHZ), Flow (FLOW), Internet Computer (ICP), Near (NEAR), Voyager (VGX), Dash (DASH), and Nexo (NEXO) as securities in the lawsuit.

❗ Why It Matters

Another day, another charge against a major crypto exchange. This time the target is Coinbase, the largest crypto asset trading platform in the United States. SEC Chair Gary Gensler is hell-bent on asserting control over crypto markets, so unfortunately, this lawsuit isn't surprising.

Coinbase has tried reasoning with the SEC to no avail, and in March, when the SEC issued the Wells Notice, Coinbase's Chief Legal Officer Paul Grewal said, "Tell us the rules and we will follow them." The reality is that it's hard to really assign sound logic to the situation, and certainly some of the confusion stems from the fact that Coinbase was able to IPO in April 2021, which now in retrospect seems odd when in the second page of the suit, the SEC wrote, "Coinbase has for years defied the regulatory structures and evaded the disclosure requirements that Congress and the SEC have constructed for the protection of the national securities markets and investors." Which implies that Coinbase was able to operate as an unregistered broker for years but was also able to IPO two years ago?

🎤 Founder Feedback

Regarding the SEC complaint against us today, we're proud to represent the industry in court to finally get some clarity around crypto rules.

Remember:
1. The SEC reviewed our business and allowed us to become a public company in 2021.
2. There is no path to "come in and…

— Brian Armstrong 🛡️ (@brian_armstrong) June 6, 2023

📊 By the Numbers

The stock price of Coinbase (NasdaqGS: COIN) is down -13% on the day at the time of writing, and it was down as much as -20% when the market opened.

🧠 Learn More

• SEC Complaint filed 06/06/23 (SEC v. Coinbase)
• Morning Minute | Coinbase Sues The SEC (April 25, 2023)
• SEC Issues Wells Notice to Coinbase (March 22, 2023)