According to Reuters, former federal prosecutor Kevin O'Brien said the SEC is increasingly active in bringing cryptocurrencies under the jurisdiction of federal securities laws. If the SEC prevails in both lawsuits, the cryptocurrency industry will have many changes.
In a complaint filed in Manhattan federal court, the SEC said Coinbase has made billions of dollars since 2019 by acting as a middleman in cryptocurrency transactions while evading disclosure requirements meant to protect investors. Coinbase traded at least 13 unregistered cryptocurrency products, including tokens such as Solana, Cardano and Polygon, the SEC said.
According to initial estimates from data firm Nansen, $1.38 billion has flowed out of the Coinbase exchange as investors rushed to withdraw their money. Shares of parent company Coinbase Global Inc (COIN.O) also fell $7.10. Coinbase Chief Legal Officer Paul Grewal said the company will continue to operate as usual and has demonstrated its commitment to compliance.
SEC Accuses Coinbase of Failing to Register as a Securities Exchange
Unlike other assets, securities are heavily regulated and require extensive disclosure to inform investors of potential risks. The US Securities Act of 1933 defines the term “securities,” but many experts rely on two US Supreme Court cases to determine whether an investment product is a security. SEC Chairman Gary Gensler has long said that tokens constitute securities, and tokens have increasingly asserted their power over the cryptocurrency market.
While some cryptocurrency companies are licensed as alternative trading systems, a type of trading platform used by brokers to trade listed securities, none of them operate as full-fledged securities exchanges. The SEC has also sued Beaxy Digital and Bittrex Global for failing to register as exchanges. Gary Gensler told CNBC that the entire business model is not compliant with U.S. securities laws.
Cryptocurrency companies say the SEC’s rules are vague and overreaching. But many have stepped up compliance, halted products and expanded overseas in response to the SEC’s crackdown.
Kristin Smith, CEO of the Blockchain Association trade group, believes the court will prove Chairman Gensler wrong in due time.
On June 5, the SEC accused Binance of inflating trading volumes, manipulating customer funds, and misleading investors about market controls. Binance denied many of the allegations in the SEC complaint. Binance founder Changpeng Zhao said investors’ assets are safe and the platform will continue to operate normally. The world’s largest cryptocurrency exchange also said it is ready to fight and protect its rights and those of its investors.
On June 6, the SEC filed a motion to freeze the assets of Binance.US, the U.S. subsidiary of Binance. It is important to note that the SEC's regulatory actions are aimed at ensuring that companies operating in the cryptocurrency industry comply with securities laws and protect investors. These events will help the cryptocurrency industry become more stable and trustworthy, even attracting more investors.
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