Coinbase Faces SEC Investigation Over Cryptocurrency Listings

Coinbase Faces SEC Investigation Over Cryptocurrency Listings

Coinbase Global Inc. is facing a U.S. investigation into whether it allowed Americans to trade digital assets that should have been improperly registered as securities, according to three people familiar with the matter. this problem. 

Coinbase's scrutiny by the U.S. Securities and Exchange Commission has increased since the platform increased the number of tokens it offers for trading,  two of the people asked to remain anonymous. know because the investigation has not been made public. The SEC's enforcement unit's investigation ahead of the agency's investigation into an alleged insider trading scheme led the regulator last week to indict a former Coinbase official and two others. 

SEC and Coinbase declined to comment. 

Outcry in Washington over US regulators having to do more to oversee cryptocurrencies has grown as digital currencies fall from all-time highs, wiping out hundreds of billions of dollars. Market value. SEC Chairman Gary Gensler focuses on trading platforms and thinks they should do more to protect retail investors. 

As the largest exchange platform in the United States, Coinbase allows Americans to trade over 150 tokens. If these products are considered securities, the company may have to register as an exchange with the SEC. 

Coinbase has repeatedly argued with the agency over how it oversees the industry, and last week the company asked the SEC to come up with clearer rules. Meanwhile, after years of taking a relatively conservative approach, Coinbase has ramped up its token offerings. 

Tensions escalated further on July 21 when the SEC accused one of the company's former employees of violating its internal trading rules by leaking information to help his brother and friends. his buy tokens right before their registration on the platform. While the agency did not allege wrongdoing against Coinbase, the SEC said it had determined that nine of the dozens of digital tokens traded by these men were securities, seven of which were securities. of which are listed by the exchange. 

Federal prosecutors in Manhattan also charged the three men with wire fraud conspiracy and wire fraud. 

In response, Coinbase posted a blog entry titled: “Coinbase does not list securities. End of story. “Chief Legal Officer Paul Grewal pointed out that the Department of Justice has chosen not to bring allegations of securities fraud, despite considering the same facts as the SEC.

He also said that prior to the token listing, Coinbase analyzes whether an asset qualifies as a security and “also looks at the regulatory compliance and information security aspects of the asset.”

SEC enforcement could lead the regulator to sue companies or individuals, and in its first-quarter earnings report, the company said it had "received a subpoena from the SEC to investigate its financial assets." data and information about certain customer programs, activities, and future products before being seen, including stable and productive products of the company".

To decide if a digital asset is a security, the SEC applies a legal test, which dates back to a 1946 US Supreme Court decision.  investors pour money to finance a company with the intention of profiting from the efforts of the organization's management. 

Gensler has long argued that many cryptocurrencies fall under the jurisdiction of the regulator and that the companies offering them should register with their authority. 

However, the SEC usually doesn't designate which coins are securities, and exchanges decide whether to list assets. Platform operators are looking to avoid offering these types of reputable securities as it could trigger investor protection rules, some of which crypto enthusiasts say are incompatible. like with digital assets.

Source: Bloomberg