The U.S. SEC has gone after crypto exchange Coinbase, a day after filing one against Binance.US and its founder, Changpeng Zhao.
The US SEC’s new crypto lawsuit against Coinbase has sent the exchange’s stocks down to 13% at the time of writing.
Coinbase faces a crypto lawsuit from SEC
U.S. SEC has filed a crypto lawsuit against Coinbase Exchange less than a day after suing Binance.U.S. The new lawsuit comes as a climax of the tension that has been there between the regulator and Coinbase for the past several months.
Today we charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency and for failing to register the offer and sale of its crypto asset staking-as-a-service program.https://t.co/XPG2gDkxtVpic.twitter.com/hCdVMw8B2v
— U.S. Securities and Exchange Commission (@SECGov) June 6, 2023
The U.S. SEC had sent a Wells Notice to Coinbase alleging that it had been breaking several rules under its jurisdiction. The notice warned that the regulator could press charges against the exchange if those services continued being offered in the U.S. without its approval.
The tension began when CEO Brian Armstrong hit back, saying that his organization had sought clearance with the SEC before opening for business in the country and was granted permission. Therefore, a crypto lawsuit, later on, could be groundless and ridiculous.
Armstrong said that his team was ready to challenge the SEC in court. Now, the SEC has served the exchange on claims that it acts as an unregistered securities broker in the nation. An excerpt from the lawsuit reads:
“The Coinbase Platform merges three functions that are typically separated in traditional securities markets—those of brokers, exchanges, and clearing agencies. Yet, Coinbase has never registered with the SEC as a broker, national securities exchange, or clearing agency, thus evading the disclosure regime that Congress has established for our securities markets. All the while, Coinbase has earned billions of dollars in revenues by, among other things, collecting transaction fees from investors whom Coinbase has deprived of the disclosures and protections that registration entails and thus exposed to significant risk.”
The SEC continues to say that Coinbase has been
“Operating as: an unregistered broker, including by soliciting potential investors, handling customer funds and assets, and charging transaction-based fees; an unregistered exchange, including by providing a market place that, among other things, brings together orders of multiple buyers and sellers of crypto assets and matches and executes those orders; and an unregistered clearing agency, including by holding its customers’ assets in Coinbase-controlled wallets and settling its customers’ transactions by debiting and crediting the relevant accounts.”
By the time of writing, Coinbase had not replied to the matter and did not reply to a query by Fintech Express regarding the crypto lawsuit on time. Keep watching for updates on regulation and other Fintech-related updates.
CZ, Binance International CEO has expressed dissatisfaction with the U.S. SEC after the U.S. branch of the exchange was served earlier today
The SEC has filed a civil lawsuit against the exchange claiming that the exchange has been breaking security laws in the nation
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Binance CEO Changpeng Zhao (CZ) calls SEC out
Binance CEO Changpeng Zhao (CZ) has expressed concern with the U.S. SEC after it sued the U.S. installment of the exchange. This branch has been operating away from the international one offering lesser crypto assets to comply with the U.S. regulations.
However, the U.S. SEC seems to disagree with how its run. It has accused Binance US of providing trading services for securities such as BNB, BUSD, SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS, and COTI.
It has also also accused Binance of providing coin-earning programs BNB Vault and Simple Earn, and staking investment plan; in addition, the SEC accused Binance of intentionally evading US supervision. CZ has commented on the developments saying that these are acts of attack against crypto considering that the SEC has been serving other crypto exchanges like Kraken and Coinbase in arguably unreasonable way, “regulation by enforcement.”
Cardano founder Charles Hoskinson has commented on the matter talking about the SEC heading operation Chokepoint 2.0 which is meant to smother crypto and lead to the adoption of a state controlled CBDC. In his words, he said
“With respect to Binance, I’m reading through the SEC complaint. It’s over 130 pages, but seems like the next in a series of steps to implement chokepoint 2.0 in the United States. The end goal is a agenda based CBDC partnered with a handful of massive banks and end-to-end control over every aspect of your financial life.”
He added that the ongoing crypto attacks calls for the removal of officials who think investors do not have a right to dictate what happens with their wallets dubbing it “authoritarianism” that needs to be put to an end.
“A regulatory event is where you have a debate about compliance with a law or guidance. This event seems to be a political philosophical disagreement with the very existence of cryptocurrencies and what they represent. An unelected group of people have decided that concepts like self-sovereign identity, owning your wallet, and the freedom to control your economic agency should be removed from the masses and given to the “enlightened” few.”
Crypto industry preparing to fight back?
A highly anticipated ruling on the XRP vs SEC is set to be issued in a few months. The industry hopes for a win which could mean an easier time with SEC and the start of a defence against its unfavorable enforcements. Next on, Coinbase has started a legal process with the SEC after the authority served them saying they have been breaking securities laws in the U.S.CEO, Brian Armstrong has said that he does not believe they are in the wrong and the team will defend itself in court.
When asked about the possibility of the CEXes teaming up to fight back, CZ has said that its not arranged yet. However, that doesn’t mean it can’t happen.
🙏 "a perfect opportunity for the entire industry to set aside it's fragmented nature and unite for a common sense set of rules and guidelines"
Twitter CEO Elon Musk has been sued for Dogecoin market manipulation
The lawsuit says that Musk willingly used Dogecoin as the Twitter logo to drive its market numbers
It’s not the first time that Musk has been served regarding Dogecoin Market manipulation claims
The crypto community reacts to the story
Elon Musk is petting his favourite dog meme-coin to much-concerned parties
Twitter’s outgoing CEO Elon Musk has been sued regarding Dogecoin market manipulation. Some Dogecoin investors believe that Musk has been saying and taking some actions to drive the prices of Dogecoin for his gain.
According to an amended class action lawsuit, the tech billionaire allegedly engaged in insider trading and carnival-like market manipulation that hurt investors. The lawsuit highlights that Musk has repeatedly praised the coin, which ended up pumping and dumping very hard, at times affecting the investments of many unaware customers while profiting from the ensuing chaos.
The lawsuit highlighted a recent encounter where Elon Musk replaced the Twitter logo with the Doge dog breed meme to drive the price of Dogecoin high. The investors behind the lawsuit believe that Dogecoin is a security under SEC and seek to establish it to further their claims that Musk played the market with insider knowledge.
The initial complaint was first filed in June 2022, but Musk’s recent takeover of Twitter slowed things down, only to create a bigger tension in the Dogecoin Market.
Not the first time Musk has been under fire for endorsing Dogecoin
Elon Musk has been under criticism on several accounts for supporting a meme coin like DOgecoin and being public about it. Whenever Musk mentioned the coin in 2021 and 2022, its value skyrocketed until he was forced to say that he liked its fundamentals and even allowed Tesla to accept Bitcoin trading with its products.
Elon Musk was later sued for around $258B for praising DOgecoin and driving its prices up for his gain as he is an active holder of the coin. He, however, moved to quash the lawsuit claiming that it has no basis.
Crypto community reacts
The crypto community has come out to express their reactions regarding Elon Musk’s actions with DOgecoin and the lawsuit that came as a result. Some have hit out at the complainants, saying it’s possibly the Dogecoin short sellers who are crying foul.
So basically the shorts who got liquidated are the ones that are crying 🤣
Others have defended him, saying that he has the right to post any meme that he sees fit, be it doge dog breed related or not. One user even said that the purpose behind the coin is having fun, meaning Musk should be let have his own.
Man is just having fun playing with dogecoin, why would he stop tweeting meme pictures and words related to doge?
He has a huge influence on the masses, but I doubt he's intentionally manipulating this coin for money, camon. It's just fun, that coin itself is just made for fun.
Crypto regulation in Indonesia has taken a new turn as Bali Governor issues a stern warning to tourists who are using crypto assets as substitutes for money in the country. He hosted a press conference on May 28 explaining that the crypto remains illegal in the country and that those who use it as means of payment will be dealt with firmly including tourists.
Crypto regulation becomes more sensitive in Indonesia
While other countries are working on crypto regulation frameworks to foster innovation, Indonesia is joining a group of the ones that take digital assets as economic threats. The Bank of Indonesia Governor Wayan Koster has asserted that the nation will not loosen its laws regarding crypto usage.
He explained that there will be a range of penalties for tourists who will be caught using cryptos including deportation, administrative sanctions, penalties, closure of their business premises, and further legal actions depending on the gravity of the situation.
The press conference was attended by Bali’s Chief Police Inspector and the head of the Bali Representative Office for the Bank of Indonesia, Trisno Nugroho. Nugroho however reaffirmed that crypto trading in the country is still allowed but the usage of crypto as a means of payment is banned and thus punishable by law.
Koster noted that the only legal means of payment in the country is the Rupiah with the use of all other forms of payment being considered against the law and carrying a maximum sentence of one year in prison or a fine of 200 million Rupiah ($13,000)
This news comes at a controversial time as there are already 37 businesses in Bali that accept crypto. Also, Indonesia was planning to launch a crypto exchange in 2022 but the plan was not successful as it was hit by delays.
Crypto regulations in the U.S. have been a hot discussion point in the past months, with specialists citing harsh regulation. In under 6 months, the U.S. regulators, including but not limited to SEC and CFTC, have charged numerous high-profile individuals and organizations in the U.S.
While some of these organizations went against the common banking rules in the U.S., there is an outcry that regulators, specifically the Securities and Exchanges Commission, are using enforcement measures before introducing a binding regulatory framework first which might affect the interest of crypto organizations in the U.S.
SEC’s recent efforts
Kraken charged
On Feb. 9, 2023, the SEC held a closed-doors meeting coming out with information that it had charged Kraken crypto exchange $30 million for violating some of its regulations via offering crypto staking services in the U.S. Additionally, it asked Kraken to cease offering these services in the U.S.
Coinbase legal battle
Coinbase seems to be the next high-profile truffle with the SEC after XRP’s parent company Ripple. The exchange’s CEO, Brian Armstrong, has taken a strong stand against the regulator’s tendencies to charge crypto organizations without a fitting regulatory framework.
On May 16, 2023, the SEC asked courts to reject a recent request by Coinbase that sought to compel the authority to introduce clear rules of the road regarding regulating crypto. The exchange filed the motion on Apr. 27, 2023, also revealing that it had initiated legal proceedings against the SEC after receiving a Well’s Notice from the regulator.
The exchange’s Chief Legal Officer Paul Grewal expressed the company’s frustration with the regulatory stance in the U.S. last month, saying:
“Coinbase does not take any litigation lightly, especially when it’s with one of our regulators,” he noted. “Yet we, like other companies in the industry, are facing potential punitive actions from the SEC without clear understanding of how the SEC interprets the law in relation to our business.”
Budget increase
In March, the SEC Chair Gary Gensler revealed to Congress that his authority required an extra $2.4B in funding. He said the authority lags in monitoring and regulating upcoming markets like cryptocurrencies. He said the extra funding would help arm the authority with the right tools and personnel to flush out bad actors from these markets.
Gary Gensler says a vast majority of cryptos are securities
One of the most controversial statements to ever come from Gary Gensler regarding cryptocurrencies is that Ethereum is a security asset. He also said that many cryptos should be classified as securities.
These statements were not welcomed by the crypto community and other regulators like CFTC, who believe that some crypto products are commodities. However, some experts never agreed with either; they stated that cryptos are digital assets and should be bound by new regulations and classified distinctly from traditional finance products.
Planned attacks?
Dr Thomas Hogan
DR Thomas Hogan, Senior Research Faculty at American Institute for Economic Research (AIER), released a video on Youtube in April discussing how the U.S. was attacking crypto via Operation Chokepoint. He also addressed the possible resurgence of this planned attack in the form of Operation Chokepoint 2.0, which aims to cripple the crypto industry.
In the video, Hogan states that the regulators’ power over the crypto industry has increased exponentially over time, with unelected bureaucrats getting heavily involved in the making and enforcement of new regulations which circumvent the democratic process as their core aim is safeguarding their wealth or making new fortunes off of the new regulations that they are bringing.
Coinbase CEO Brian Armstrong claims the SEC wants to do away with crypto staking
Coinbase CEO Brian Armstrong has repeatedly revealed that the US SEC has hidden agenda regarding the crypto industry. He has come out to say that SEC’s plan is to cause destabilization of the industry in a bid to control it internationally, which might not work, leaving the U.S. behind in the innovation.
On Feb. 9, 2023, he tweeted that his office had received rumors that the SEC sought to eliminate crypto staking for retail customers.
1/ We're hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that's not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.
Lax regulation witnessed in the traditional U.S. financial sector
Silicon Valley Bank sinks pulling international customers down with it
Republican lawmakers are accusing top bank regulators of sitting back while big banks like Silicon Valley Bank went down in flames. The collapse of this regional banking institution in the U.S. was the second largest of its kind in U.S. history.
Regulators closed the bank on March 10 and FDIC announced that it would bail out customers using the money paid to it. However, new information has surfaced that international customers did not benefit from this act of ‘kindness and responsibility’ by regulators.
As if foreigners didn't have enough incentives to dump their U.S. dollars, the FDIC just gave them another. Foreign customer's of #SVB weren't extended the same protection as domestic customers and will take heavy losses. The message to foreigners is clear. Don't bank in the U.S.
Treasury Chair Janet Yellen has confessed that lax regulations by the US government are to blame for the industrial collapse of 2008. We never saw any major changes in the way that the banking system is run in the U.S. even after the collapse meaning loss of income for millions of citizens.
Additionally, a big number of officials of wrongly managed financial institutions of the era were never charged or barred from ever participating in similar offices ever again. For instance, an executive at SVB was the CFO of LeMahns Brothers which collapsed in 2008. Should regulators bar such individuals from ever participating in the financial sector ever again? You tell me.
Banks are issuing risky residential mortgages under regulator’s watch
Banks have been issuing residential mortgages that are risky and hurting U.S. citizens due to a lack of enough oversight from governing bodies. Some types of mortgages like the ones with variable prices are risky as they squeeze a big number of people down their social classes when an economic crisis happens.
Unluckily, the U.S. regulators are not talking about this issue as banks continue to siphon money from innocent citizens who never participated in the process of passing bad financial policies that have brought inflation rates up necessitating high bank rates from the federal reserve.
Now in May 2023, the prices of varying mortgages was up by 7%, and have to be serviced by the same citizens who are battling a 6% total inflation against the US dollar.
Harsh crypto regulation is not good for innovation…
Several crypto and financial analysts have called out the SEC for its regulation methods citing that it won’t be good for innovation. Here is what some of them have to say:
Brian Armstrong
Coinbase CEO Brian Armstrong has become one of the greatest forces in the blockchain industry following his readiness to challenge the SEC in court regarding its poor regulatory framework and its tendency to capitalize on it.
On Feb. 9, 2023, he condemned the US SEC for seeking to ban crypto staking, stating that it would affect the U.S. markets by driving crypto companies offshore. He stated that the operation of companies away from the U.S. is the real reason for increased fraudulent activities, like in the case of FTX and Terra ecosystems.
5/ Regulation by enforcement doesn’t work. It encourages companies to operate offshore, which is what happened with FTX.
Armstrong also led his team in building an international exchange last month to move away from the U.S., which foreshadows growing displeasure among crypto entities in the U.S.
Tim Tully- CEO, Zelcore Technologies
In an interview with Fintech Express, CEO Timothy Tully of Zelcore Technologies, a Web 3 company offering secure and simple-to-use ‘control center’ for cryptocurrency wallets, digital assets, and blockchain data, insisted on the U.S. having a uniform crypto regulatory framework.
He referenced the FTX, Kraken, and Paxos’s BUSD cases, saying that regulators are not making the rules clear yet insist on enforcing their mysterious interpretation of TradFi rules.
In his words, he said:
“Though regulation is necessary at this point, some of the steps that the U.S. regulators are taking may only make things worse. For instance, the branding of BUSD as a security, introduction of CBDCs which will be used as tools of surveillance is wrong and will most likely push crypto innovation away from the U.S.”
He explained that the noise witnessed in the crypto space is most likely a trojan horse from the U.S. SEC looking to stifle crypto innovation globally.
Joe Lubin, CEO, ConsenSys and Ethereum co-founder
In March, Joe Lubin, Consensys CEO, and Ethereum co-founder, hit back at claims that Ether is security. He said that he feels Ethereum is not a security after Gary Gensler labeled it so, and a subsequent lawsuit from the New York Attorney General against crypto exchange KuCoin also named it so.
Lubin said that Ethereum is more of a commodity like oil other than a security citing that people often buy oil anticipating a price rise. He stated that crypto industry participants are generally frustrated with how regulators handle their job. However, he added that it’s a good thing that some regulatory efforts have brought more light to the crypto space.
“I think some of us believe that many of the actions are right and reasonable,” he said, adding “more clarity” was needed. “We’ve seen focus on things that should see real scrutiny and we’ve seen misunderstandings.”
Oliver Linch, CEO Bittrex
Oliver Linch’s Bittrex Inc. was charged by the US SEC on Apr. 17, 2023, on allegations that it was operating as an unregistered securities exchange, broker, and clearing agency in the U.S. The regulator further accused the exchange’s international branch, Bittrex Global GmbH, of failing to register with them, claiming that both exchanges shared a single order book.
“We’ve not really seen an explanation as to what the SEC’s thinking is there, why that is of significance,” Linch said, referring to allegations of a shared order book. “Suffice to say, we think that they’re mistaken in the way they conceive of it legally and in terms of facts.”
Oliver Linch hit back at the regulator’s claim that they did not get any notice of an ongoing investigation until the SEC sent a notice saying they had reached a preliminary conclusion. He explained that the SEC did not serve justice as they ignored their right to have a chance to explain facts about how their exchanges operated.
He, however, praised the regulatory efforts in Lichtenstein, Bermuda, saying that it’s great for regulators to identify the risks associated with crypto and move to managing them rather than discouraging service providers.
“What we’re seeing is a growing realization that the most successful regulatory regimes are ones that have created a framework for crypto on a bespoke basis,” Linch said. “Now, that’s why we’re regulated in Liechtenstein in Bermuda, because what those jurisdictions did really early on is really get to grips with crypto, what the product is, what services, what the risks are, and say to people, ‘OK, well, we can identify and manage. Here’s how you do it safely.’”
Linch asked the U.S. Congress to help sort out the crypto regulatory mess and ensure that if the country wants to regulate the industry, it starts with developing a workable framework
Keep watching Fintech Express for more finance-related updates.
The U.S. Chamber of Commerce has just filed a brief in Coinbase v. SEC case, calling out the SEC for acting “unlawfully” in the digital asset space.
Coinbase case to save crypto from unfriendly regulation?
The U.S. Chamber is a highly influential organization representing companies in all industries across the U.S. making it a force to reckon with in the preservation and fostering of innovative financial technology.
It has now intervened in the Coinbase vs SEC case where the crypto exchange decided to stand ground and face the regulator with confidence that it had met all operating requirements therefore shouldn’t be served notices regarding its already vetted products or charged.
“As it stands today, nobody knows for certain which digital assets, if any, are ‘securities’ under federal law.”
In the brief, the Chamber makes 3 arguments.
1. Regulatory uncertainty is killing innovation in the U.S.
2. The SEC is destabilizing the digital assets regulatory environment.
3. The SEC is violating Constitutional Due Process and Fair Notice rights.
The Chamber goes ahead to declare:
“The SEC’s actions are not just harmful policy; they are unlawful…”
Coinbase CEO Brian Armstrong has been condemning the SEC for poor regulation. Most people took it as a pr stunt or a losing battle as the SEC has been notoriously cracking down on crypto. Now, the new statement from the Chamber of Commerce will add more weight to the matter and stand strong in court.
However, only time will tell where the direction of the case will be headed but the involvement of the most influential innovation fostering authorities in the U.S will make it interesting. Keep watching fintech express for updates on this and other fintech-related stories .
