the sec files a complaint against binance for selling unregistered assets

The United States Securities and Exchange Commission (SEC) is filing a lawsuit against the cryptocurrency exchange Coinbase this morning for operating as an unregistered exchange within the country along with offering and selling unregistered securities to investors.

In a press release published this morning, the country’s financial watchdog claimed that, since 2019, Coinbase has been operating on US soil unlawfully as it has been acting as a broker, clearing agency, and exchange without obtaining authorization from the Commission.

The SEC believes that failing to register its business as an authorized securities dealer “has deprived investors of significant protections, including inspections by the SEC recordkeeping requirements, and safeguards against conflicts of interest, among others”.

SEC Takes On Crypto Staking and Alleges It Involves the Sale of Unregistered Securities

In addition, the agency is pointing to the exchange’s crypto staking service as a program that offers and sells unregistered securities to non-accredited investors as customers invest in so-called “proof-of-stake” cryptocurrencies and receive income for this activity.

“Through this staking program, Coinbase allegedly pools each type of customers’ stakeable crypto assets, stakes the pool to perform blockchain transaction validation services, and provides a portion of the rewards generated from this work to its customers whose assets were part of the pool. Coinbase failed to register its offers and sales of this staking program as required by law”, the press release emphasizes.

Meanwhile, Gurbir S. Grewal, the Director of the SEC’s Division of Enforcement commented that “Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them”.

He added: “While Coinbase’s calculated decisions may have allowed it to earn billions, it’s done so at the expense of investors by depriving them of the protections to which they are entitled. Today’s action seeks to hold Coinbase accountable for its choices.”

This latest legal proceeding is taking place just a day after the Commission filed a claim against one of Coinbase’s top rival exchanges, Binance, and its founder, Changpeng Zhao, on similar grounds.

changpeng zhao head of binance sued by the sec

The lawsuit against Binance claims that, despite claiming the contrary, the crypto exchange and its subsidiaries in the United States – Binance.US and BAM Trading – allowed US customers to operate on without securing the appropriate registrations.

In addition, and perhaps the most serious allegation at this point, the SEC states that CZ, as the founder of the exchange is also known, and Binance are able to access and control customers’ assets on the platform. This allows them to discretionally divert or commingle the funds that these clients have entrusted the company for undisclosed purposes.

“Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law”, the Chairman of the SEC, Gary Gensler, commented about the legal proceeding against Binance. Coinbase is not being accused at this point of commingling or diverting customers’ assets as Binance.

The SEC Picked an Interesting Day to File a Lawsuit Against Coinbase

The agency’s complaint has been filed with the United States District Court for the Southern District of New York. The lawsuit claims that Coinbase (COIN) has breached provisions and rules outlined in the Securities Exchange Act of 1934 and the Securities Act of 1933.

The SEC’s lawsuit comes on the same day that Paul Grewal, the Chief Legal Officer and Corporate Secretary for Coinbase, is expected to provide his testimony to the House Committee on Agricultural Services to discuss the need for relevant and accurate legislation for crypto assets.

In a blog post published yesterday, Grewal highlighted that the United States is forcing entrepreneurs to go to other countries to establish and grow their tech companies, referring primarily to the blockchain space, as the US has been unable to create an appropriate environment for these businesses to thrive.

“The rest of the world is not waiting for us, and they are taking advantage of our absence. The European Union, the UK, Australia, Singapore and China – through Hong Kong – just to name a few, are putting in place regulatory frameworks that are creating room for innovation while also protecting consumers”, Grewal asserted.

The legal expert claims that the proposed Digital Asset Market Structure Discussion Draft that is scheduled to be discussed today in Congress would be positive to “establish a strong foundation to ensure robust protections for consumers, investors, and market participants engaged in crypto”.

However, today’s actions from the SEC are certainly hostile and may send a clear message that it does not necessarily agree with the provisions set forth in this proposed legislation. Coinbase stock is taking a big hit this morning in pre-market trading as its value is plunging by nearly 20%. Yesterday, the stock price dropped by 9% after news about the lawsuit brought forward against Binance came out.

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