The United States gets tough on cryptocurrency firms. They have been for years taking advantage of legal loopholes to operate and, sometimes, violating the rules, The US stock exchange authority has decided to take action and accuse the big firms in the sector. After denouncing Binance on Tuesday, on Wednesday it was the turn of Coinbase, which had already been subject to fines from the authorities. The Securities and Exchange Commission (SEC) now accuses it of illegally operating a cryptocurrency trading platform and failing to register the offering and sale of its crypto-asset program as a service.
Coinbase shares fall sharply on the stock market before the official opening of the market, around 15%. Bitcoin is also trading lower again. Coinbase is the largest crypto asset trading platform in the United States and has served more than 108 million customers, representing billions of dollars in daily trading volume on hundreds of crypto assets, according to data from the supervisor.
According to the 101-page SEC complaint, since at least 2019, Coinbase has made billions of dollars by illegally facilitating the purchase and sale of crypto asset securities. The SEC alleges that Coinbase intertwines the traditional services of an exchange, a broker, and a clearing agency without having registered any of those functions with the Commission, as required by law.
Through these unregistered services, Coinbase purportedly provides a marketplace and gathers the securities orders of multiple buyers and sellers using established, non-discretionary methods, under which such orders interact; engages in securities transactions for Coinbase customer accounts; and provides facilities for the comparison of data relating to the settlement conditions of crypto-asset securities transactions, acts as an intermediary in the settlement of crypto-asset securities transactions by Coinbase clients and acts as a securities depository.
According to the SEC, the failure of Coinbase to register has deprived investors of important protections, including inspection by the supervisor, record-keeping requirements, and safeguards against conflicts of interest, among others.
"You cannot ignore the rules because you do not like them or because you prefer different ones: the consequences for the investing public are too serious," Gurbir S. Grewal, director of the SEC's Division of Enforcement, said in a statement. "As alleged in our complaint, Coinbase was fully aware of the applicability of federal securities laws to its trading activities, but deliberately refused to comply with them. While Coinbase's calculated decisions may have allowed it to make billions, it has done so at the expense of investors by depriving them of the protections to which they are entitled. Today's action is intended to hold Coinbase accountable for its decisions," he adds.
The cryptocurrency platform has already reached an agreement to pay a $50 million fine to the State of New York for significant failures in its regulatory compliance program that violated state banking law and regulations on virtual currencies, money transmitters, transaction monitoring, and cybersecurity.
The deal was made public in January by the New York State Department of Financial Services (DFS). According to the Department, those failures made the Coinbase platform vulnerable to serious criminal conduct, including, but not limited to, examples of fraud, possible money laundering, suspected activity related to child sexual abuse material, and possible drug trafficking. In addition to the penalty, Coinbase agreed to invest an additional $50 million over the next two years to remedy the issues and improve its regulatory compliance program in accordance with a DFS-approved plan. Coinbase had already warned in its latest annual report that an investigation was underway.
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