The US SEC is suing cryptocurrency platform Coinbase, a day after it sued Binance

NEW YORK (Reuters) – The U.S. Securities and Exchange Commission on Tuesday filed a lawsuit against Coinbase (COIN.O), accusing the largest U.S. cryptocurrency platform of operating illegally because it failed to register as an exchange.

The lawsuit is the second the SEC has filed in two days against a major crypto exchange, following its case against Binance, the world’s largest cryptocurrency exchange, and founder Changpeng Zhao.

Both civil lawsuits are part of SEC Chairman Gary Gensler’s efforts to assert jurisdiction over cryptocurrency markets, which on Tuesday he again described as the “wild west” of investing, protecting investors while boosting their confidence in the capital markets.

“The cryptocurrency markets are undermining that confidence, and I would say this: they are undermining our capital markets in general,” Gensler told CNBC.

Crypto companies including Coinbase have said the SEC rules are unclear, and the regulator is overreaching by emphasizing oversight of their industry.

Coinbase General Counsel Paul Grewal said in a statement that the company will continue to operate as usual and has a “clear commitment to compliance.”

Ten US states led ca They also accuse Coinbase of violating securities law regarding their staking rewards program.

Shares of Coinbase parent Coinbase Global Inc were down $6.42, or 10.9%, at $52.29 in the afternoon, after earlier falling as much as 20.9%.

Data firm Nansen said Coinbase customers withdrew more than $57 million within two hours of the SEC filing.

Thirteen CRYPTO ORIGINALS

Since at least 2019, Coinbase has made billions of dollars by acting as an intermediary in crypto transactions, while evading disclosure requirements intended to protect investors, the SEC said in its complaint filed in Manhattan federal court.

The SEC said that Coinbase has traded at least 13 crypto assets that are securities that should have been registered, including tokens such as Solana, Cardano, and Polygon.

Founded in 2012, Coinbase recently served more than 108 million customers, and ended in March with $130 billion in customer crypto assets and funds on its balance sheet. The transactions accounted for 75% of its net revenue of $3.15 billion last year.

In its staking rewards program, which has about 3.5 million customers, Coinbase collects crypto assets and uses them to support activity on the blockchain network, in return for the “rewards” it provides to customers after taking a commission for itself.

States focused on this program also include Alabama, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin. New Jersey fined Coinbase $5 million to sell unregistered securities.

“The rules cannot be ignored”

The SEC’s lawsuit on Tuesday seeks civil fines, wrongful gains damages and injunctive damages. The Securities and Exchange Commission warned Coinbase in March that accusations could be made.

“You cannot simply ignore the rules because you don’t like them or because you prefer different rules,” Gurbir Grewal, SEC’s chief enforcement officer, said in a statement.

Gensler’s crypto campaign prompted the industry to ramp up compliance, discontinue products, and expand out of the country.

Kristen Smith, CEO of the Blockchain Association trade group, dismissed Gensler’s efforts to oversee the industry.

“We are confident that the courts will prove President Gensler wrong in due course,” she said.

In the Binance case, the US Securities and Exchange Commission (SEC) is accused of exchanging inflated trading volumes, diverting customer funds, improperly mixing assets, failing to turn wealthy US clients off its platform, and misleading customers about its controls.

binance Pledge Defending vigorously against the lawsuit, he said the case reflects the SEC’s “misguided and conscious refusal to provide clarity and guidance to the cryptocurrency industry.”

Coinbase’s friction with Gensler dates back to 2021, when the Securities and Exchange Commission (SEC) threatened to sue Coinbase if it would allow users to earn interest by lending digital assets. The company scrapped the idea.

The case is SEC v Coinbase Inc and Others, US District Court, Southern District of New York, No. 23-04738.

(Reporting by Jonathan Stempel) in New York. Additional reporting by Hannah Lang and Michelle Price in Washington, D.C. and Manya Saini in Bengaluru; Editing by Jason Neely, Louise Heavens, Chizu Nomiyama and Nick Zieminski

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