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Skip to content Sections SEARCH Business SUBSCRIBE FOR $1/WEEKLog in Tuesday, June 6, 2023 Today’s Paper SUBSCRIBE FOR $1/WEEK Business|Coinbase Accused of Breaking Market Rules as Crypto Crackdown Widens https://www.nytimes.com/2023/06/06/business/sec-coinbase-lawsuit-cryptocurrency.html * Give this article * * * 49 CRYPTOCURRENCY * Crypto Terms to Know * A Guide to Digital Currency * Crypto Businesses, Explained Advertisement Continue reading the main story Supported by Continue reading the main story COINBASE ACCUSED OF BREAKING MARKET RULES AS CRYPTO CRACKDOWN WIDENS The S.E.C. said the cryptocurrency platform allowed users to trade unregistered securities, a day after it accused the crypto platform Binance of mishandling funds. * Send any friend a story As a subscriber, you have 10 gift articles to give each month. Anyone can read what you share. Give this article * * * 49 * Read in app The Securities and Exchange Commission sued Coinbase, the largest cryptocurrency trading platform in the United States, on Tuesday.Credit...Gabby Jones for The New York Times By Matthew Goldstein, Ephrat Livni and Emily Flitter June 6, 2023Updated 4:38 p.m. ET In an intensifying effort to end what the authorities see as the era of lawlessness in the cryptocurrency market, the Securities and Exchange Commission on Tuesday sued Coinbase, the largest crypto trading platform in the United States, claiming that the company broke the law by not registering as a broker. The S.E.C., the nation’s top securities regulator, filed the lawsuit a day after it accused Binance, the world’s biggest cryptocurrency trading exchange, of mishandling customer funds and lying to American regulators and investors about its operations. With these federal actions against major crypto companies, along with other lawsuits at the state level, regulators have sought to reshape the crypto sector by treating digital asset exchanges like more traditional financial firms, while pushing out individuals and companies that they view as bad actors. In its filing on Tuesday, the S.E.C. detailed the ways in which Coinbase’s leaders had demonstrated that they knew how the marketing and sale of digital assets should be governed under U.S. laws, even while failing to follow them. Advertisement Continue reading the main story “Coinbase has elevated its interest in increasing its profits over investors’ interests, and over compliance with the law and the regulatory framework that governs the securities markets and was created to protect investors and the U.S. capital markets,” the filing said. Coinbase went public in April 2021, an event seen as a milestone in crypto’s march into the mainstream. The company handled $830 billion worth of trades last year, with nearly nine million users making at least one trade per month. The S.E.C. said Coinbase had made billions easing the sale of crypto assets but deprived investors of significant protections. Its complaint, filed in federal court in Manhattan, claims that the company operated as an unregistered exchange even though it told investors in going public that regulators might deem some of the products traded on its platform to be securities. Coinbase has argued that its business model got tacit approval from the S.E.C. when the agency approved its initial public offering. The company has said it is willing to work with the S.E.C. but does not agree with its position that all digital assets offered on its trading platform must be registered securities, which require more strict oversight. The action is consistent with the S.E.C.’s long-held view that most crypto products are no different from stocks, bonds and other securities. That means the firms that operate as exchanges and provide a platform for trading and selling crypto products must be registered like any exchange or brokerage that facilitates stock or bond trading. Advertisement Continue reading the main story “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,” Gurbir S. Grewal, the director of the S.E.C.’s enforcement division, said in a statement. Executives in the crypto industry, which has reveled in challenging the rules and operating outside the heavily regulated confines of the mainstream finance industry, have often argued that digital assets are different and that many of the rules for stocks should not apply. “The S.E.C.’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness,” Coinbase’s chief legal officer, Paul Grewal, said in a statement about the suit. “The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation,” added Mr. Grewal, who is not related to the S.E.C. enforcement officer. “The message here is that regulatory clarity already exists when it comes to exchanges and broker dealers,” said John Reed Stark, a former S.E.C. enforcement lawyer and regulatory consultant. Advertisement Continue reading the main story Adding to Coinbase’s legal troubles, securities regulators in 10 states, including Alabama, California, Illinois and New Jersey, filed their own actions on Tuesday seeking to stop the company from selling unregistered securities to investors in their states. The state regulators said Coinbase must first register to offer those products in their states. Some states, like New Jersey, imposed fines on the company. The S.E.C. suit and the actions by state regulators against Coinbase touched on a crucial issue that many in the crypto industry have said Congress must address: whether digital asset products are securities or something totally different. The S.E.C. has said the test to determine whether a crypto product should be treated like a security is derived from a 1946 Supreme Court case that led to what is known as the Howey test. The S.E.C. chair, Gary Gensler, has often said that this standard is clear and that no new laws are needed to determine whether a digital asset is a security. The industry, however, has begged to differ. The S.E.C. complaint took issue with Coinbase’s claims that it was fully compliant with applicable securities laws before offering new digital products for trading, dismissing them as “lip service.” Advertisement Continue reading the main story According to the 101-page complaint, “Coinbase has for years made available for trading crypto assets that are investment contracts under the Howey test and well-established principles of the federal securities laws.” The suit, long anticipated by Coinbase, comes as its executives and others in the crypto industry hope to shift the narrative about digital assets. Mr. Grewal of Coinbase testified before a House committee on Tuesday about a draft bill regulating crypto. Coinbase has said it welcomes regulation and wants to cooperate with the S.E.C. The S.E.C. lawsuit is the latest enforcement in a multiyear crackdown on the crypto market by the regulator, which has picked up steam after the collapse of the FTX cryptocurrency exchange in November and criminal charges against its founder, Sam Bankman-Fried. The lawsuit against Coinbase notably did not include an allegation of fraud, like the complaint against Binance, or a request for a preliminary injunction against the company. The S.E.C. on Monday also sued Binance’s founder and chief executive, Changpeng Zhao. On Tuesday, it did not similarly sue Coinbase’s chief executive, Brian Armstrong. Coinbase, unlike Binance, does not issue its own crypto tokens, and the company has argued that its status as a publicly listed company ensured that it followed strict rules about its operations. Advertisement Continue reading the main story The company petitioned the S.E.C. for new rules last summer and even sued the agency for failing to act on its request in April. The flurry of legal actions against Coinbase, and the crackdown on the crypto industry in general, have weighed on the company’s stock price. Shares of Coinbase have fallen roughly 20 percent in the past two days. Matthew Goldstein covers Wall Street and white-collar crime and housing issues. @mattgoldstein26 Ephrat Livni reports from Washington on the intersection of business and policy for DealBook. Previously, she was a senior reporter at Quartz, covering law and politics, and has practiced law in the public and private sectors. @el72champs Emily Flitter covers finance. She is the author of “The White Wall: How Big Finance Bankrupts Black America.” @FlitterOnFraud Read 49 Comments * Give this article * * * 49 * Read in app Advertisement Continue reading the main story COMMENTS 49 Coinbase Accused of Breaking Market Rules as Crypto Crackdown WidensSkip to Comments Share your thoughts. The Times needs your voice. We welcome your on-topic commentary, criticism and expertise. Comments are moderated for civility. SITE INDEX SITE INFORMATION NAVIGATION * © 2023 The New York Times Company * NYTCo * Contact Us * Accessibility * Work with us * Advertise * T Brand Studio * Your Ad Choices * Privacy Policy * Terms of Service * Terms of Sale * Site Map * Canada * International * Help * Subscriptions KEEP READING WITH ONE OF THESE OPTIONS: CREATE A FREE ACCOUNT. ACCESS ADDITIONAL ARTICLES FOR NO COST, NO CREDIT CARD INFORMATION NEEDED. FREE Continue Already have an account? Log in. GET ALL OF THE TIMES. 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