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The new lawsuit against Coinbase is coming only a few hours after the SEC sued Binance for violation of the same US securities rules.
This time around, Coinbase was indicted in a New York Federal Court earlier today for operating as an unregistered national securities exchange and broker according to the regulator. The lawsuit stated that Coinbase has been operating in this manner since at least 2019 when it started conducting crypto transactions.
Coinbase Prime and Coinbase Wallets were named as two products that the firm leveraged to attract investors.
The self-custody Coinbase Wallet is recognized to help investors access liquidity outside of the Coinbase platform and according to a Twitter post made by SEC Chair Gary Gensler, this “deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection”.
Also, the regulator identified Coinbase staking service as an investment contract and unregistered securities, similar to the offense and charges levied against the Kraken cryptocurrency exchange earlier in the year. Precisely, the staking service was described as a means for investors to make a profit via Coinbase’s managerial efforts.
Therefore, the SEC is requesting that the company be permanently restrained and enjoined from doing so in the future.
Coinbase and SEC Remains at Loggerheads
Noteworthy, Coinbase and the SEC have been at each other’s throats for some time, especially as it concerns regulation for the nascent industry.
About two months ago, the American exchange received a Wells Notice from the regulator. Per the notice, SEC claimed to have identified potential violations of U.S. securities law, therefore, it planned to enforce action on the exchange. During that time, Coinbase clarified that none of its listed assets were securities.
Consequently, Coinbase chief legal officer Paul Grewal said:
“If needed, we welcome a legal process to provide the clarity we have been advocating for and to demonstrate that the Commission simply has not been fair or reasonable when it comes to its engagement on digital assets. Until then, it is business as usual.”
The new lawsuit against Coinbase is coming only a few hours after the same regulator sued leading digital asset service provider Binance for violation of the same US securities rules. Binance was accused of mishandling customers’ funds and misleading investors and regulators alike. This is in addition to flouting Know-Your-Customer (KYC) rules by letting Americans trade on the platform after stating that they were not allowed.
Just like Coinbase had previously done, Binance called out the SEC for failing to provide clarity on crypto regulation. In response to the lawsuit, the leading trading platform announced that it was ready to defend its stance in court. However, the lawsuit had already done some damage to the crypto market, causing several digital assets to plunge.
Coinbase shares dipped by 9% following the announcement of the Binance-SEC lawsuit and now the newly filed lawsuit against Coinbase has brought the stock down by 13%.