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SEC sues Coinbase over exchange and staking programs, stock drops 12%

1 comment

  1. skybrian
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    From the article: [...] [...] The SEC also sued Binance yesterday: The SEC sues Binance, unveils 13 charges against crypto exchange in sweeping lawsuit (NPR) Matt Levine has commentary: [...]

    From the article:

    The Securities and Exchange Commission sued crypto exchange Coinbase in New York federal court on Tuesday morning, alleging that the company was acting as an unregistered broker and exchange and demanding that the company be “permanently restrained and enjoined” from continuing to do so.

    [...]

    The SEC has alleged that at least 13 crypto assets available to Coinbase customers were considered “crypto asset securities” by the regulator. Those assets include Solana’s SOL token, Cardano’s token and Protocol Labs’ Filecoin token.

    [...]

    Coinbase’s staking program was also identified as a investment contract and as an unregistered security: The SEC had already taken similar action to force the closure of crypto exchange Kraken’s staking service.

    The SEC described the staking program as a way for “investors to earn financial returns through Coinbase’s managerial efforts.” The SEC says the five “stakeable crypto assets” are considered securities under its interpretation of the law, an assessment that will no doubt be disputed by Coinbase.

    The SEC also sued Binance yesterday:

    The SEC sues Binance, unveils 13 charges against crypto exchange in sweeping lawsuit (NPR)

    In the Binance lawsuit, the S.E.C. accused Zhao and his company of misleading investors about Binance's ability to detect market manipulation as well as of misusing customer funds and sending some of that money to a company controlled by CZ, among other charges.

    The S.E.C. also accused Binance of running an unregistered trading platform in the U.S. and allowing U.S. customers to trade crypto on an exchange that is supposed to be off-limits to U.S. investors.

    Matt Levine has commentary:

    There are basically two ways for a crypto exchange to get in trouble with the SEC. The good way is that you get in trouble for running an illegal securities exchange. In April, the SEC sued Bittrex Inc. for allegedly operating an illegal securities exchange; any reasonable reading of the Bittrex case made it clear that similar cases were coming against Coinbase and Binance. Just being a crypto exchange in the US is, in the SEC’s eyes, illegal.

    The bad way is that you get in trouble for stealing all the money. Last December, the SEC sued FTX Trading Ltd., a big crypto exchange. Here is the SEC’s complaint against FTX. I am absolutely certain that the SEC thinks that FTX operated an illegal securities exchange in the US. But that does not even come up in the complaint. There is too much else going on. FTX allegedly stole all the money! When an exchange steals all the money, the SEC focuses on that. When it doesn’t steal all the money, the SEC focuses on the illegal securities exchange stuff.

    And so one question about this week’s cases is: Is the SEC suing Coinbase and Binance for being crypto exchanges, or for being bad crypto exchanges? Is the claim here “you let people trade crypto, which we think is illegal,” or is it “you let people trade crypto and steal their money”?

    [...]

    [F]or the most part the Binance complaint is the same as the Coinbase complaint: Binance is accused of operating a crypto exchange that was open to US customers and that listed crypto tokens that are securities, without registering as a US securities exchange. I am tempted to read yesterday’s lawsuit as kind of an endorsement of Binance by the SEC. The SEC, and before it the CFTC, investigated Binance carefully and wrote a 136-page complaint about every bad thing it could find, and all it could find is that Binance is running a crypto exchange.

    Still, while the arguments in the two complaints are mostly the same, Coinbase’s and Binance’s attitudes are very different. [...] Coinbase recognized that this was a potential risk, and set up committees and procedures to ponder and mitigate it. [...] Meanwhile here is how Binance’s wonderful chief compliance officer described his fact-intensive analysis of whether Binance listed security tokens in the US:

    As Binance’s CCO bluntly admitted to another Binance compliance officer in December 2018, “we are operating as a fking unlicensed securities exchange in the USA bro.” (Emphasis added.)

    Just a much clearer perspective! Coinbase hired a lot of lawyers and did a lot of analysis and wrote a lot of checklists to convince itself that it was legally running a crypto exchange in the US. Binance was like “well obviously this is illegal in the US, ah well.” The SEC absolutely agrees with Binance.

    2 votes