Over the past year, the cryptocurrency industry has faced numerous challenges, and the past two days have been particularly difficult for cryptocurrency exchanges operating in the United States. On Tuesday, the US Securities and Exchange Commission (SEC) announced that it was suing Coinbase, the largest cryptocurrency exchange in the US, in federal court for allegedly selling unregistered securities and violating securities laws. The SEC lawsuit covers Coinbase’s exchange, which allegedly sold unregistered securities, as well as its staking-as-a-service program, which rewards users for holding their cryptocurrency with the company.
The SEC lawsuit against Coinbase comes just one day after the SEC filed a similar suit against Binance, the world’s largest cryptocurrency exchange. The SEC is alleging that both Binance and Coinbase broke securities laws around unregistered securities. However, there are significant differences between the two cases. In addition to the securities allegations, the SEC is also alleging that Binance and its CEO Changpeng Zhao engaged in market manipulation and fraud. Unlike in the Binance case, the SEC has not included Coinbase CEO Brian Armstrong in its lawsuit.
According to the suit, Binance and CZ “defrauded equity, retail, and institutional investors” with “manipulative trading” on the Binance.US platform, “which were in fact virtually non-existent.” The lawsuit also claims that CZ’s trading firm, Sigma Chain, inflated trading volumes on Binance.US through “wash trading,” which is when the same entity sells and buys the same crypto token or other financial asset in order to falsely prop up market activity.
In addition to the federal lawsuit from the SEC, additional action has been taken against Coinbase at the state level. A “multi-state task force of ten state securities regulators” is ordering Coinbase to prove why the crypto exchange should continue operating over the next 28 days or cease and desist operations. The task force, which worked with the SEC, was “led by California” and included Alabama, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin.
Regulators in the US have had a renewed interest in the crypto industry after last year’s market collapse following the failure of stablecoin Terra and its sister crypto token Luna, followed by the implosion of numerous crypto lenders and the fraudulent FTX crypto exchange.
In conclusion, the cryptocurrency industry has faced numerous challenges over the past year, and the recent lawsuits against Binance and Coinbase by the SEC highlight the need for increased regulation in the industry. While both exchanges are accused of breaking securities laws around unregistered securities, the SEC is also alleging market manipulation and fraud against Binance and its CEO. The actions taken against Coinbase at the state level further emphasize the need for increased scrutiny of cryptocurrency exchanges.