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For the second time in 24 hours, the US Securities and Exchange Commission has sued a major cryptocurrency exchange. Yesterday, the regulator filed charges against Binance and its CEO, Changpeng Zhao, with accusations of manipulative trading practices, mishandling customer assets, and failures of corporate control. Today, the SEC followed up with a suit against the Nasdaq-listed exchange Coinbase, alleging that it has violated securities laws.
The double salvo sends a clear message that the SEC is gunning for crypto. The upshot of this could be that US investors lose access to popular crypto assets.
“We are reaching an end state where if the current regulatory crackdown in the US proceeds unchecked, then you’re basically banning most crypto activity in the US,” says Omid Malekan, an adjunct professor at Columbia Business School and author of Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets and Platforms.
The SEC’s latest complaint doubles down on its long-standing assertion that many crypto tokens are simply securities, as defined under existing laws in the US. That means they fall under its purview, the regulator says. Based on that interpretation, the suit, filed in the Southern District of New York, accuses Coinbase of knowingly operating an unregistered securities exchange by selling tokens, including Sol, Ada, and Matic, to US investors. The SEC also accuses Coinbase of violating securities law in connection with its staking service, which lets customers earn profits on certain crypto holdings by pooling them and locking them up.
“You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: The consequences for the investing public are far too great,” said Gurbir S. Grewal, director of the SEC’s enforcement division, in a public statement. “Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them.”
Like Binance yesterday, Coinbase turned the finger of blame back on the regulator, claiming the SEC has failed to mark out a road to compliance for crypto businesses. “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,” says Paul Grewal, the company’s chief legal officer. Coinbase has “demonstrated commitment to compliance,” he claims, and will continue to operate as usual while it defends against the complaint.
This tension—over the interpretation of existing securities laws and whether they apply to crypto—will form the center of the case to come, says Noelle Acheson, an independent crypto analyst. “It’s very much game on,” Acheson says.
With the filings against Coinbase and Binance, the SEC has now formally alleged that seven of the top 15 largest cryptocurrencies are securities. Bitcoin is considered an exception, and the SEC has not rendered a clear verdict on Ether, but the agency “seems to be using a broad rubric by which to classify these tokens as securities,” says Molly White, author of crypto-skeptic blog Web3 Is Going Just Great.