U.S. regulators sue Coinbase, joining Binance as crypto exchanges under scrutiny

Click to play video: 'Crypto exchange Coinbase dismisses 20% of workers in 3rd round of layoffs'
Crypto exchange Coinbase dismisses 20% of workers in 3rd round of layoffs
Cryptocurrency exchange Coinbase is reducing its workforce by about 20 per cent in its third round of layoffs in a year, meaning 950 employees will be out of a job. Plus, the House of Commons' transport committee wants to include some passengers on its witness list as it investigates recent holiday travel chaos. Anne Gaviola has more on today’s top business news stories – Jan 10, 2023

The U.S. Securities and Exchange Commission on Tuesday sued Coinbase, accusing the largest U.S. cryptocurrency exchange of operating illegally without having first registered with the regulator.

Tuesday’s lawsuit came one day after the SEC sued Binance, the world’s largest cryptocurrency exchange, and its founder Changpeng Zhao.

Both cases are part of SEC Chair Gary Gensler’s push to assert jurisdiction over crypto and offer better protection to investors who trade virtual currencies.

“Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection,” Gensler said in a tweet.

Story continues below advertisement

Coinbase did not immediately respond to a request for comment. Shares of its parent Coinbase Global Inc, which is also a defendant, fell 17.1% in premarket trading.

In a complaint filed in Manhattan federal court, the SEC said Coinbase has since at least 2019 made billions of dollars by handling cryptocurrency transactions, while evading the disclosure requirements meant to protect investors.

The lawsuit addressed several aspects of Coinbase’s business including Coinbase Prime, which routes orders; Coinbase Wallet, which lets investors access liquidity; and the Coinbase Earn staking service.

In the staking program, Coinbase pools crypto assets and uses them to facilitate activity on the blockchain network, in exchange for “rewards” it provides customers 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.

Click to play video: 'Home improvement and cryptocurrency riskiest scams of 2022'
Home improvement and cryptocurrency riskiest scams of 2022

“You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones,” SEC Enforcement Chief Gurbir Grewal said in a statement.

Story continues below advertisement

In the Binance case, the SEC accused that exchange of inflating trading volumes, diverting customer funds, improperly commingling assets, failing to keep wealthy U.S. customers off its platform, and misleading customers about its controls.

Sponsored content