SEC Charges Coinbase—Alleges Crypto Trading Platform Operated As Unregistered Exchange Since 2019

Topline

Just one day after levying charges against the world’s largest cryptocurrency exchange, the Securities and Exchange Commission filed suit against cryptocurrency giant Coinbase on Tuesday, alleging the popular U.S. trading platform has been operating an unregistered broker since at least 2019.

Brian Armstrong, founder of Coinbase, photographed for Forbes by Jamel Toppin in January 2020.

Jamel Toppin/The Forbes Collection

Key Facts

In a statement Tuesday, the SEC said it has charged Coinbase with operating its crypto trading platform as an unregistered broker and for failing to register the offer and sale of its staking-as-a-service program, which allows investors to earn returns through the firm’s work in verifying and securing transactions on the blockchain.

The complaint, filed in U.S. District Court for the Southern District of New York, further alleged Coinbase made “billions of dollars unlawfully,” acting as an unregistered broker by providing a marketplace for securities and effecting transactions for Coinbase customers.

Coinbase shares cratered more than 15% in pre-market trading to less than $49 immediately after the suit was unveiled.

In a statement, SEC Chair Gary Gensler said Coinbase’s alleged failures “deprive investors of critical protections” that help prevent fraud and manipulation.

Coinbase Chief Legal Officer Paul Grewal hit back at the allegations on Tuesday morning, saying the SEC’s “reliance on an enforcement-only approach in the absence of clear rules” for the crypto industry is “hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance.”

Tangent

The suit comes one day after the SEC levied 13 charges against Binance, the world’s largest crypto exchange. In its complaint, the agency alleged the company has shown “blatant disregard of the federal securities laws” and that Binance and Changpeng Zhao, its CEO, have “enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk.”

What To Watch For

In his statement, Grewal said Coinbase will “continue to operate [its] business as usual,” until officials create legislation that “allows fair rules for the road to be developed transparently and applied equally.”

Big Number

$1.3 billion. That’s the trading volume Coinbase has facilitated over the past 24 hours alone—making it the second-busiest crypto exchange, according to CoinMarketCap. Over the same period, Binance’s trading volume is roughly $12 billion.

Key Background

Coinbase debuted on the public market in April 2021 after a watershed year for cryptocurrencies, but the firm has had a rocky ride ever since. Shares have cratered more than 80% from their peak that year, and the price of bitcoin is still down about 60% from its own high. Over the past year, the firm has laid off more than 2,000 employees. “We grew too quickly,” CEO Brian Armstrong said after the first round of layoffs last June, later saying in January he believed “recent events” surrounding “unscrupulous actors” in the industry would lead to more “regulatory clarity.” The charges against Binance and Coinbase have further rocked the crypto market, pushing the price of bitcoin down about 4% to $25,500—the lowest level in nearly three months.