Crackdown on Unregistered Crypto Exchanges
The US Securities and Exchange Commission (SEC) has turned its attention to a significant portion of the crypto exchanges, filing lawsuits against exchanges that collectively represent half of the global digital asset trading.
According to the Financial Times, the financial regulator filed a lawsuit against Coinbase on Tuesday, claiming the San Francisco-based exchange violated US securities law by not registering as a broker, national securities exchange, or clearing agency. This led to a 12 percent drop in Coinbase shares.
Simultaneously, the SEC also filed a complaint against Binance and its CEO Changpeng Zhao, alleging various civil charges, including improper commingling of customer funds with those of a trading firm owned by Zhao.
Gary Gensler, the SEC chair, has emphasized his agency’s role as the primary regulatory authority for cryptocurrencies in the United States. The commission has initiated several enforcement actions against crypto companies since the beginning of the year.
As per the SEC’s allegations, Coinbase has operated as an unregistered broker since at least 2019, offering assets classified as securities, bringing its operations under securities laws.
Gensler stated: “Coinbase’s alleged failures deprive investors of critical protections, including rule books that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC.”
In March, Coinbase disclosed receiving a Wells notice from the SEC, indicating potential regulatory action. The company emphasizes the need for clearer regulations in its industry.
“The SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance,” said Paul Grewal, Coinbase general counsel. “The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation.”
This SEC case adds to Coinbase’s recent regulatory issues, as the company settled for $100 million with New York regulators in January over deficiencies in its money-laundering controls.
On Tuesday, Coinbase also received an order from the securities regulator in Alabama, questioning why the company should not be prohibited from “selling unregistered securities” within the state, related to Coinbase’s staking rewards program. This action resulted from collaboration among ten state securities regulators, including those in California and Illinois.
Furthermore, the SEC has filed 13 charges against Binance, the largest global cryptocurrency exchange, and its CEO Zhao. Binance’s international exchange, US exchange, and Coinbase collectively hold a 50.6 percent share of the cryptocurrency trading market, according to CCData, a data platform.
Read our coverage of that here.
“These trading platforms, they call themselves exchanges, are commingling a number of functions which [we don’t see] in traditional finance,” Gensler stated to CBNC.
The SEC aims to prevent Coinbase and Binance from violating specific sections of securities and exchange laws, seeking to recover alleged unlawfully obtained profits, impose a monetary penalty, and at Binance, permanently prohibit Zhao from serving as an officer or director of any issuer registered with the agency.
In a separate submission on Tuesday, the SEC requested a temporary asset freeze on various entities associated with Binance and sought repatriation and other forms of relief for customer assets held on Binance’s US platform.
Despite Bitcoin breaking down to technical support after the Binance case emerged, the Bulls and the industry have seemingly rallied behind Binance and Coinbase, and evidently Bitcoin too, propelling the price off support:
As per the above chart, Bitcoin saw a 7% rally off support on the news.
It will be interesting to see how this situation develops! Does Gary Gensler have more ammunition left?
The moral of this story is – Bitcoin transcends any government, nation, or enterprise.
