The Coinbase cryptocurrency exchange has been rocked by news that it is being sued by the United States Securities and Exchange Commission (SEC).
The company faced charges on 6 June 2023, with the SEC claiming that it was an “unregistered national securities exchange, broker, and clearing agency”.
The news had an impact on the price of shares in Coinbase, which dropped overnight from $58.71 to $47.03, a fall of nearly 20%. Although Coinbase is yet to comment on the matter, according to reports from CNBC, it is considered to be one of the few crypto-related organizations with either the wealth or the clout to take on the SEC.
Coinbase has faced a tough time since it went public in April 2021. The exchange was given the approval of the SEC at a time when the crypto market was booming, at least partially in response to American Covid-19 stimulus cheques finding their way into the cryptosphere.
With an opening price of $342, the exchange’s shares soon found themselves going down as the crypto market slumped in the summer of that year, but they reached an all-time high of $357.39 on 9 November as Bitcoin reached record peaks.
2022 was not a good year for COIN shares, however, and the collapse of the FTX exchange in November of that year saw it sink to an all-time low of $31.55. Since then, things have improved somewhat but, with the sights of the SEC firmly set on crypto, it has been a rocky road for the business.
In a statement, the SEC said that “since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities. The SEC alleges that Coinbase intertwines the traditional services of an exchange, broker, and clearing agency without having registered any of those functions with the Commission as required by law.”
It added: “Coinbase’s failure to register has deprived investors of significant protections, including inspection by the SEC, recordkeeping requirements, and safeguards against conflicts of interest, among others.”
The charges also claim that Coinbase had “been engaging in an unregistered securities offering through its staking-as-a-service program, which allows customers to earn profits from the “proof-of-stake” mechanisms of certain blockchains and Coinbase’s efforts”.
SEC Chair Gary Gensler said that Coinbase had “commingled” a variety of functions in its operations.
He explained: “We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions.
“In other parts of our securities markets, these functions are separate.”
The news follows on from the SEC, which has been involved in a long-running legal battle with Ripple Labs over whether or not Ripple’s XRP cryptocurrency represents an unregistered security, taking the Binance crypto exchange to court over claims that the crypto giant was also dealing in unregistered securities. The lawsuit, which was filed on 5 June, claims that Binance had operated a “web of deception”, diverting customer funds and artificially inflating trading volumes. Binance denies the claims.