The US Securities and Exchange Commission (SEC) launched a lawsuit against crypto exchange, Coinbase, on Tuesday (June 6).
It marks the second lawsuit in just two days as the US regulator has started cracking down on the giants of the crypto industry.
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Since the dramatic collapse of Bahamas-based cryptocurrency exchange FTX in November 2022, the crypto industry has been anxiously awaiting how the SEC would respond.
FTX founder, Sam Bankman-Fried, has been charged with multiple crimes including money laundering and securities fraud.
The world’s largest cryptocurrency platform, Binance, was issued with a lawsuit by SEC on Monday (June 5) – after accusing the exchange and its CEO of lying to regulators.
The SEC said CEO Changpeng Zhao and his platform Binance had been running a “web of deception”.
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By GlobalDataUS-based Coinbase has been accused of evading important safety measures to protect crypto investors, according to the complaint filed by SEC.
The US regulators said the platform put its customers at risk by operating an “unregistered broker, exchange and clearing agency”.
Coinbase has been accused of trading over 13 unregistered crypto assets that should have been declared. These include tokens like Polygon and Solana, Reuters reported.
The lawsuits amplify the tumultuous battle between the SEC, which wants crypto firms to comply with pre-existing laws, and many within the crypto industry who believe that crypto needs a unique set of rules.
Hard times for the crypto industry
The crackdown on two of the largest cryptocurrency platforms indicates the SEC is taking a stance on enforcing tougher regulation in the sector.
“The SEC is taking proactive and – some in the industry might say – almost aggressive enforcement action against crypto exchanges where there are suspicions of improper conduct,” Daniel Seely, financial services lawyer and crypto expert at national law firm Freeths, told Verdict.
The industry, which is currently in the middle of a “cryptowinter”, is still suffering the loss of FTX.
“By taking this action against Binance and Coinbase now, it is trying to make sure that any issues are identified and addressed before the businesses potentially collapse in the same way FTX did,” Seely added.
“The crypto industry has sought to rebuild its reputation following the FTX collapse last year, and so the SEC’s actions will likely prove a setback in their efforts,” Seely told Verdict.
Mona El Isa, co-founder of Enzyme, a DeFi asset management protocol by AUM, told Verdict that more “transparency” is needed in the industry.
“Centralised crypto companies – like Binance – don’t demonstrate any meaningful proof of reserves, so there’s an implied trust that assets are custodied appropriately,” El Isa said.
“Transparency over custody would have allowed the market to better discriminate good from bad practices, effectively monitoring much of the activity that was going on and mitigating potential issues,” she added.
