SEC Charges Coinbase Crypto Exchange

The U.S. Securities and Exchange Commission is suing Coinbase, the largest cryptocurrency trading platform in the U.S., charging that it has made billions of dollars by illegally facilitating trading in cryptocurrency assets. Coinbase and other crypto trading platforms have claimed that their activities should not fall under the oversight of federal or state securities regulators. To the contrary, argues the SEC, cryptocurrencies are securities and they must have the same regulatory oversight as other publicly traded financial assets to protect investors.

“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,” said Securities and Exchange Commission Chairman Gary Gensler.

The federal securities regulator 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. The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, came one day after the regulator charged Binance, the world’s biggest cryptocurrency exchange, with numerous securities violations.

“This is a field that’s built, the whole business model is built on non-compliance with the U.S. securities laws,” Gensler told CNBC.  “They’re co-mingling various functions that in traditional finance we don’t allow.’

In addition to forcing Coinbase to register with the SEC, the suit demands that Coinbase disgorge all ill-gotten gains and that the court impose financial penalties on the firm for its securities violations.

Many investors who sought quick profits in cryptocurrencies have lost huge sums due to fraud.  Billions of dollars of investor funds remain missing as a result of the collapse of the FTX crypto exchange, which federal prosecutors charge was “one of the biggest financial frauds in U.S. history.”