A day after suing Binance, the U.S. Securities and Exchange Commission (SEC) has targeted Coinbase in its latest offensive on the crypto industry.
In a new press release, the SEC says it’s charging Coinbase for “operating as an unregistered securities exchange, broker, and clearing agency.”
The regulator is also charging Coinbase for “failing to register the offer and sale of its crypto asset staking-as-a-service program.”
In its 101-page complaint, the SEC says that the crypto assets offered on the Coinbase Platform, Coinbase Prime, and Coinbase Wallet services are all “crypto asset securities” and thus squarely within the purview of securities laws.
While Coinbase and other firms have repeatedly asked for a semblance of regulatory clarity from US officials, the SEC says that Coinbase has understood since at least 2016 that the Supreme Court’s decision in SEV v. W.J Howey Co. in 1946 already allows for determining whether a crypto asset is part of an investment contract and subject to securities laws.
The “Howey Test,” which stems from the now 77-year-old lawsuit, has a four-prong criterion that, according to the SEC, clearly allows firms to determine whether a transaction qualifies as an investment contract.
The SEC alleges that Coinbase has ignored the Howey Test in favor of maximizing profits.
“And, as part of its public marketing campaign to position itself as a ‘compliant’ actor in the crypto
asset space, Coinbase has for years touted its efforts to analyze crypto assets under the standards set
forth in Howey before making them available for trading.
But while paying lip service to its desire to comply with applicable laws, Coinbase has for years made available for trading crypto assets that are investment contracts under the Howey test and well-established principles of the federal securities laws. As such, Coinbase has elevated its interest in increasing its profits over investors’ interests, and over compliance with the law and the regulatory framework that governs the securities markets and was created to protect investors and the U.S. capital markets.”
As part of the relief sought for Coinbase’s alleged violations, the SEC is seeking civil money penalties, as well as disgorgement on the exchange’s “ill-gotten gains” with prejudgment interest imposed.
At time of writing, the two largest crypto exchanges in the world by volume, Binance and Coinbase, are now in the middle of fighting charges from the SEC.
Coinbase shares (COIN) fell 21% on the news.
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