The U.S. Securities and Exchange Commission (SEC) took legal action against Coinbase, the largest U.S. crypto asset trading platform, accusing it of engaging in unlawful operations without registering with the regulator.
According to the complaint filed at a federal court in Manhattan, the SEC alleges that Coinbase has been acting as an unregistered broker since at least 2019 by facilitating cryptocurrency transactions and avoiding the disclosure requirements that are designed to safeguard investors.
Furthermore, the SEC claims that Coinbase operated as an unregistered broker through Coinbase Prime, a service that directs orders to Coinbase’s platform and other platforms, as well as Coinbase Wallet, which enables investors to access liquidity outside of Coinbase’s platform.
SEC Chair Gary Gensler expressed concerns over Coinbase’s alleged failures, stating that they undermine crucial investor protections, such as fraud prevention measures, disclosure regulations, safeguards against conflicts of interest, and regular inspections.
Following the lawsuit, Coinbase’s shares dropped by 15.9% in premarket trading. Coinbase has not yet provided a comment in response to the SEC’s actions.
The SEC’s legal action against Coinbase in Manhattan federal court came just one day after the regulator filed a lawsuit against Binance, the world’s largest cryptocurrency exchange, and its founder Changpeng Zhao.
In addition to the lawsuit against Coinbase, it’s worth noting that certain cryptocurrencies like Cardano and Polygon have also faced allegations of being securities. However, it’s important to clarify that these allegations have not been proven as facts.
Cardano, for instance, boasts a thriving ecosystem, a strong community, decentralized characteristics, and extensive utility. Based on these factors, it does not appear to meet the criteria of a security and could potentially pass the Howey Test, which is used to determine whether an asset qualifies as a security under U.S. law. It’s essential to recognize that the classification of cryptocurrencies as securities or not is a complex matter that requires careful examination and legal assessment.
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