By Jon Blistein
The Securities and Exchange Commission, as part of their crypto crackdown has filed new charges against Coinbase and another major cryptocurrency exchange.
Coinbase, a brokerage, securities exchange and clearing agency, has operated since at least 2019 without being registered as such with the SEC. SEC says that Coinbase has “deprived” investors of protections including SEC Inspections, Record Keeping Requirements, and Other Safeguards.
Coinbase’s assertion that it acts simultaneously as a broker, exchange and clearing agent is an important safeguard. The complaint states that these three main functions are normally separated in traditional security markets. It noted that separating these functions would be a key reason why the SEC separated them, to prevent any conflicts of interest.
Gary Gensler is the SEC chairman. He said Coinbase offered illegally exchange, broker-dealer and clearinghouse functions, despite having to comply with securities laws. Other parts of the market have separate functions. Coinbase is accused of failing to provide investors with critical protections. This includes rulebooks designed to protect against fraud and manipulation.
Paul Grewal (Chairman of the Legal Department and General Counsel at Coinbase) commented on the allegations made against the company: “We are of the opinion that SEC’s enforcement model without clear guidelines is harmful to US economic development and businesses such as Coinbase which have an established track record in conforming with regulation. It is important to have laws which are being established in a fair and open manner. This will allow for uniform application of the law. “We will carry on as usual while we wait.”
Coinbase dropped their charges one day after SEC charged Binance with 13 counts of fraud and misappropriation. Binance, in addition to misleading its customers and misusing their funds, allowed its top traders, who are also its biggest traders, to continue trading on its unregulated, international exchange. This was according to SEC.
Zhou has a very high profile, but he’s kept it low. This changed recently after Binance’s former main rival, FTX collapsed and its co-founder Sam Bankman-Fried (who pleaded not guilty to numerous fraud and campaign finance charges) was arrested. Even though he is a prominent figure, he kept a low public profile. However, this has changed over the past few months after Binance’s main competitor, FTX fell apart and Sam Bankman Fried, its founder, pleaded innocent to many campaign finance and fraud charges.
Chris Van Hollen of Maryland said to Rolling Stone that “clearly CZ is lurking in shadows.” Binance operates in a very hazy area. It is difficult to determine what Binance does. “We have just been through the collapse of [Silicon Valley Bank], which was regulated. There was at least a review process.” Binance has no relevant information. The black box is what worries me. It could cost a great deal of money.”
