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Cryptogambling / SEC escalates crypto crackdown with lawsuits against Coinbase, Binance

SEC escalates crypto crackdown with lawsuits against Coinbase, Binance

Publish Date: 07/06/2023

o d, tags: crypto lawsuits - live.staticflickr.com

The U.S. Securities and Exchange Commission has filed lawsuits against crypto exchange Coinbase, just one day after serving a similar lawsuit against Binance.

The SEC’s legal action against Coinbase, filed in Manhattan federal court on Tuesday, alleges that the platform has evaded disclosure requirements while making billions of dollars as a middleman in crypto transactions since at least 2019.

The complaint says that Coinbase traded several crypto assets that should have been registered as securities, including tokens such as Solana, Cardano and Polygon. Initial estimates suggest that Coinbase experienced a net customer outflow of approximately $1.28 billion following the lawsuit.

Coinbase’s general counsel, Paul Grewal, expressed the company’s commitment to compliance, saying that they would continue to operate as usual.

Former federal prosecutor Kevin O’Brien noted that the legal repercussions and potential implications of these lawsuits could be significant, saying, “If the SEC prevails in either case, the cryptocurrency industry will be transformed.”

Brian Armstrong πŸ›‘οΈ
2023-06-07 19:35
Regarding the SEC complaint against us today, we’re proud to represent the industry in court to finally get some clarity around crypto rules. Remember: 1. The SEC reviewed our business and allowed us to become a public company in 2021. 2. There is no path to “come in and… https://t.co/2YCcf1kXVT
2361 249

SEC’s lawsuits and the future of cryptocurrencies in the U.S.

The SEC’s lawsuits against Coinbase and Binance demonstrate the regulatory body’s increasingly aggressive stance towards bringing cryptocurrencies under federal securities laws.

According to experts, these lawsuits have the potential to redefine the regulatory landscape for the industry, which has been reported to largely operate outside the purview of traditional financial oversight.

“The two cases are different, but overlap and point in the same direction: the SEC’s increasingly aggressive campaign to bring cryptocurrencies under the jurisdiction of the federal securities laws,” said O’Brien.

This marks a departure from the industry’s long-standing argument that tokens do not constitute securities and should not be subject to SEC regulation.

Ed Moya, a senior market analyst at Oanda, highlighted that the SEC’s actions against crypto exchanges appear to be just the beginning, likening it to a game of Whac-A-Mole.

Gary Gensler
2023-06-07 19:35
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. https://t.co/FwpdmENvoL
2062 7326

He noted that as most exchanges offer tokens operating on blockchain protocols targeted by regulators, the repercussions could extend beyond the immediate legal battles. Consequently, traders are flocking back to the leading cryptocurrency Bitcoin, as altcoins face increasing scrutiny.

The SEC, led by Gary Gensler, has consistently maintained that tokens are securities and has been steadily asserting its authority over various aspects of the crypto market.

Initially, the focus was on token sales and interest-bearing crypto products. More recently, the SEC has expanded its scrutiny to encompass unregistered crypto broker-dealers, exchange trading and clearing activity. Gensler stressed that the agency’s goal is to ensure compliance with securities laws and protect investors.

Crypto companies have strongly refuted the SEC’s classification of tokens as securities, arguing that the rules are ambiguous and that the agency is overstepping its authority. Despite the pushback, many companies have taken steps to enhance compliance, halt certain products and expand operations beyond U.S. borders in response to the regulatory crackdown.

“We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions.”

Gary Gensler, Chair of the U.S. Securities and Exchange Commission

Implications and market response

The legal actions against Coinbase and Binance have sparked significant market reactions and implications for the crypto industry.

Coinbase’s parent company, Coinbase Global Inc, experienced a sharp decline in its share price, closing down 12.1 percent and falling as much as 20.9 percent at one point.

Bitcoin, the leading cryptocurrency, paradoxically benefited from the crackdown, however. After an initial decline to a three-month low following the Binance lawsuit, Bitcoin has rebounded by more than three percent in the last 24 hours, trading just above $26,500 at the time of writing.

The lawsuits also highlight the SEC’s broader crackdown on crypto brokers and exchanges. Apart from Coinbase and Binance, the SEC has also sued Beaxy Digital and Bittrex Global this year for failing to register as exchanges, clearinghouses and brokers.

Kristin Smith, CEO of the Blockchain Association trade group, dismissed Gensler’s efforts to oversee the industry and expressed confidence that the courts would prove him wrong in due time.

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