US crypto exchange Coinbase has been sued by the US Securities and Exchange Commission, alleging that it has acted as an unregistered exchange and broker.
In the lawsuit, the SEC alleged that the crypto business broke securities law by failing to register with the agency before operating in the US.
Following the release of the lawsuit yesterday (6 June), Coinbase's stock fell 19.5%, before recovering to having dropped 12.1% throughout the day, according to MarketWatch data.
Binance sued by SEC over 'variety of securities law violations'
Coinbase handled $830bn in trades last year, with nearly nine million users making at least one trade per month. It made its initial public offering in April 2021 and currently holds over $130bn in assets.
SEC chair Gary Gensler said: "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 by the SEC."
Meanwhile, securities regulators in ten states filed their own actions aiming to stop Coinbase from selling unregistered securities to investors in their states, with some, such as New Jersey, imposing fines on the firm.
The suit from the SEC comes a day after it filed a lawsuit against Binance, the world's biggest crypto trading exchange, where it accused it of mishandling customer funds and lying about its operations to regulators and investors.
"You simply cannot ignore the rules because you do not like them or because you would prefer different ones: the consequences for the investing public are far too great," added Gurbir Grewal, director of the SEC's Division of Enforcement.
"As alleged in our complaint, Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them. While Coinbase's calculated decisions may have allowed it to earn billions, it has done so at the expense of investors by depriving them of the protections to which they are entitled."
