S.E.C. Alleges Coinbase’s Breach of Market Regulations

On Tuesday, the Securities and Exchange Commission filed a lawsuit against Coinbase, the largest cryptocurrency trading platform in the United States, stating that the company violated securities law by failing to register as a broker. The country’s top securities regulators filed the suit the day after suing Binance, the biggest cryptocurrency trading exchange globally, accusing it of mishandling customer funds and concealing its operations from American regulators and investors.

According to the S.E.C., Coinbase has amassed billions by facilitating the sale of crypto assets, making it one of the most significant players in the cryptocurrency market, but failed to provide investors with significant protections. The lawsuit, filed in a Manhattan federal court, alleges that although Coinbase warned investors that certain products traded on its platform may be deemed securities by regulators and that its operations carried risks before going public, it behaved as an unregistered exchange.

“You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: the consequences for the investing public are far too great,” said Gurbir S. Grewal, the director of the S.E.C.’s Division of Enforcement, in a statement.

Coinbase executives and other cryptocurrency industry players are attempting to change public perception of digital assets, and the lawsuit against Coinbase, long anticipated by the company, comes at a pivotal moment. Coinbase’s chief legal officer, Paul Grewal, is scheduled to testify before a House committee today about draft legislation that was introduced the previous week regarding crypto regulation. Coinbase has stated that it supports regulation and is willing to cooperate with the S.E.C.

Nevertheless, Coinbase has long criticized the agency, arguing that it relies on enforcement to regulate and that legislation would signal that lawmakers, rather than regulators, establish the rules. Mr. Grewal stated that he would tell lawmakers that the United States is “falling behind the rest of the world when it comes to sensible legislation” and that “the rest of the world is not waiting for us.” He may, however, encounter questions about the lawsuit against Coinbase.

This lawsuit is the latest salvo in a years-long crackdown on the cryptocurrency market by the S.E.C., which has gained momentum following the collapse of the FTX cryptocurrency exchange last November, and the charges brought against its founder, Sam Bankman-Fried.

This is a developing story. Check back for updates.