On Tuesday, the U.S. Securities and Exchange Commission filed a lawsuit against Coinbase alleging that the crypto exchange was operating as a broker, national securities exchange, and clearing agency without registering with the SEC.
The SEC further alleges that different crypto assets offered on Coinbase are unregistered securities, including popular cryptocurrencies such as Solana and the native tokens of Cardano and Polygon.
The lawsuit comes a day after the SEC filed suit against Coinbase rival Binance, and less than three months after Coinbase disclosed it had received a Wells Notice from the SECa document that the agency uses to inform firms that they are facing a legal investigation.
Coinbases 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, said SEC Chair Gary Gensler in a statement.
The lawsuit delivers yet another blow to the reeling crypto industry, with Coinbase long presenting itself as a legally compliant player in the volatile sector.
The lawsuit was filed in the U.S. District Court of the Southern District of New York.
You simply cant ignore the rules because you dont like them or because youd prefer different ones: the consequences for the investing public are far too great, said Gurbir S. Grewal, Director of the SECs Division of Enforcement in a statement.
A Coinbase spokesperson did not immediately respond to a request for comment.
According to the 101-page complaint, Coinbase has made billions of dollars by combining traditional services of financial firms without the required registration of those services with the SEC, thus depriving investors of significant protections.
Following a similar February enforcement action against competitor Kraken, the SEC also alleged that Coinbase has offered unregistered securities through its staking-as-a-service program, where customers can earn profits through the proof of stake model of different blockchains, including Ethereum.
When the SEC issued its Wells Notice in March, a person close to Coinbase, who spoke on the condition of anonymity, told Fortune that the agencys decision to go after the company was likely tied to its decision to expand offshore operations. In May, Coinbase launched its international exchange in Bermuda to offer derivatives products not available in the U.S.
Coinbase has argued that its staking service is different than Krakens because it does not hold customer assets, instead providing software that allows users to participate in staking activities.
Since the SEC honed in on Coinbase, the U.S. exchange has pushed back against the agency, including suing the SEC in April to compel the agency to engage in rulemaking. Were absolutely convinced the SEC is violating the law, we feel like we have no choice but to take them to court, Coinbase chief legal officer Paul Grewal told Fortune at the time.
In its lawsuit on Tuesday, the SEC also expanded the list of tokens it considers to be securities, including SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO. The SEC had previously included many of the popular cryptocurrencies in its lawsuit against Binance on Monday, a move that will likely force brokers to rethink listing the tokens and depress liquidity and price.
This is a developing story. Check back for updates.
