SEC Chairman Gary Gensler is trying to assert his jurisdiction over cryptocurrencies and offer better protection to investors who trade virtual money.
“Coinbase’s alleged failures deprive investors of critical protections, including regulations that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection,” Gensler said in a tweet.
Coinbase did not immediately respond to a request for comment. Shares of its parent company, Coinbase Global, which is also sued, were down 20% at the open.
In a lawsuit filed in federal court in Manhattan, the SEC said Coinbase has, since at least 2019, made billions of dollars handling cryptocurrency transactions while evading disclosure requirements meant to protect investors.
The lawsuit addressed various aspects of Coinbase’s business, including Coinbase Prime, which routes orders; Coinbase Wallet, which allows investors to access liquidity, and the Coinbase Earn validation service.
In the validation program, Coinbase pools crypto assets and uses them to facilitate activity on the “blockchain” or chain of blocks, in exchange for “rewards” after taking a commission for itself.
The SEC said Coinbase was “fully aware” that its business was subject to federal securities laws, but ignored it.
“You simply can’t ignore the rules because you don’t like them or because you prefer different ones,” Gurbir Grewal, the SEC’s chief enforcement officer, said in a statement.
In the Binance case, the SEC accused the exchange of inflating trading volumes, diverting client funds, improperly mixing assets, failing to keep wealthy US clients off its platform, and misleading clients about its controls.