SEC sues cryptocurrency platforms Coinbase and Binance

The U.S. Securities and Exchange Commission (SEC) has taken legal action against major cryptocurrency platforms Coinbase and Binance, intensifying its crackdown on the industry.
Bitcoin exchangeThese lawsuits have the potential to reshape the crypto market by establishing the SEC’s authority over the sector. For years, the industry has argued that tokens are not securities and should not fall under the SEC’s regulatory purview.

In its complaint filed in Manhattan federal court, the SEC accused Binance, the world’s largest cryptocurrency exchange, and its CEO Changpeng Zhao of engaging in deceptive practices. The SEC alleges that Coinbase, since at least 2019, has profited billions of dollars by acting as an intermediary in crypto transactions while evading disclosure requirements aimed at protecting investors.

Kevin O’Brien, a partner at Ford O’Brien Landy and former federal prosecutor, commented that although the two cases are distinct, they align with the SEC’s increasingly aggressive approach to bringing cryptocurrencies within the scope of federal securities laws.

According to the SEC, Coinbase traded at least 13 crypto assets that qualify as securities and should have been registered, including tokens like Solana, Cardano, and Polygon. Following the lawsuit, Coinbase experienced an estimated net customer outflow of $1.28 billion. Shares of Coinbase’s parent company, Coinbase Global, fell 12.1 percent to $51.61, with a maximum decline of 20.9 percent. However, they have risen by 46 percent over the course of the year.

Coinbase’s general counsel, Paul Grewal, stated that the company will continue its regular operations and has a demonstrated commitment to compliance. Crypto companies contest the SEC’s definition of tokens as securities, asserting that the agency’s regulations are vague and that it is exceeding its authority by attempting to regulate them. Nevertheless, many companies have increased their compliance efforts, halted product developments, and expanded operations outside the United States in response to the regulatory crackdown.

Kristin Smith, CEO of the Blockchain Association trade group, rejected the oversight efforts of SEC Chair Gary Gensler, expressing confidence that the courts will ultimately prove him wrong.

Coinbase recently served over 108 million customers and held $130 billion of customer crypto assets and funds on its balance sheet as of March. Transactions accounted for 75 percent of the company’s $3.15 billion net revenue in the previous year.

On the other hand, the SEC accused Binance on Monday of various misconducts, including inflating trading volumes, diverting customer funds, commingling assets improperly, allowing wealthy U.S. customers on its platform, and misleading customers regarding its controls. Binance vowed to vigorously defend itself against the lawsuit, criticizing the SEC for failing to provide clarity to the crypto industry. Subsequently, customers withdrew approximately $790 million from Binance and its U.S. affiliate. The SEC has also filed a motion to freeze assets belonging to Binance.US.

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