Home / SEC Sues Coinbase: Regulator Alleges Exchange Operated as Unregistered Broker Two Years After Approving Its IPO
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SEC Sues Coinbase: Regulator Alleges Exchange Operated as Unregistered Broker Two Years After Approving Its IPO

Last Updated June 6, 2023 3:45 PM
Omar Elorfaly
Last Updated June 6, 2023 3:45 PM

Key Takeaways

  • SEC files a lawsuit against Coinbase, claiming the company is an unregistered trading platform that lists registered securities.
  • The SEC had already approved Coinbase IPO back in April 2021.
  • The news of the lawsuit follows another lawsuit filed by the SEC against Coinbase’s biggest competitor, Binance.

The Securities and Exchange Commission sued the crypto exchange Coinbase in the New York federal court, claiming that the company is operating as an unregistered exchange and broker, shortly after the second anniversary of Coinbase’s IPO (COIN) being approved.

The SEC Goes After Coinbase

The SEC’s charges  against Coinbase state that the company has been operating as an unregistered trader, and that 13 of the assets listed on the company’s platform are listed. 

“We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions,” said SEC Chair Gary Gensler, adding that “In other parts of our securities markets, these functions are separate. Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC. Further, as we allege, Coinbase never registered its staking-as-a-service program as required by the securities laws, again depriving investors of critical disclosure and other protections.”

One Head After Another

The news comes shortly after the lawsuit filed by the SEC against Coinbase’s biggest rival, Binance, along with its founder, Changpeng Zhao. Among the SEC’s allegations  against Binance are evading US regulators, commingling customer funds with corporate funds and artificially inflating trade volumes to scam investors. 

The news of Binance’s legal trouble has caused the crypto trade market to plummet. Shares dropped 22%  in premarket trading on Tuesday the 6th. While Coinbase stock has already decreased by 9% on Monday.

At the time when Coinbase was approved for listing, it was seen as a major milestone for cryptocurrency enthusiasts and investors. Now, Two years later, Coinbase is in hot water with the SEC, along with its biggest rival, Binance. The possibility of both crypto exchange platforms going under would surely cause not only a huge market gap but even bigger turbulence in the crypto trading market. 

What Happens Now?

Legal deliberations are bound to take time as they are endless details for the SEC to cover in both cases. In the case of Binance, the founder Zhao alleges that the SEC is pushing for stricter oversight, hence going after the biggest players in the market. However, things are different with Coinbase, as the company was approved back in 2021 by the SEC for trading securities. Regardless of the legal outcome in either case, it does not bode well for the crypto trading market as loss of faith and trust in major crypto trading companies already shows in the dwindling number of share values in the market.