The SEC has filed a lawsuit against Binance and Coinbase, accusing them of violating securities laws meant to safeguard investors in the crypto market. This is part of the SEC’s efforts to clamp down on the industry.
The SEC has filed a lawsuit against Binance and Changpeng Zhao, claiming that Binance acted as an exchange in the U.S. without authorization and transferred customer funds to a trading entity controlled by Zhao, which was used to artificially increase Binance’s trading volume. The SEC brought 13 charges against Binance and Zhao, including failing to register as an exchange, broker-dealer, clearing agency, and offering unregistered securities.
According to SEC Chair Gary Gensler, Zhao and Binance entities are facing thirteen charges for engaging in deception, conflicts of interest, lack of disclosure, and evading the law. They allegedly announced false controls to comply with U.S. securities laws but disregarded them privately to retain high-value U.S. customers on their platforms. Gensler warns the public to avoid investing in these platforms because they are unlawful.
The lawsuit seeks to request a federal judge to freeze Binance’s assets and appoint a receiver. This action is typically taken when fraud is suspected and there is a considerable potential risk to the customers’ assets.
In a blog post, Binance stated that they have been cooperating with the SEC’s investigations and have put in efforts to respond to their questions and address their concerns. They further added that all user assets on Binance and its affiliate platforms, including Binance.US, are secure and safe. Binance also assured that they will strongly defend against any allegations suggesting otherwise.
The U.S.’s largest crypto trading platform, Coinbase, has been accused of not registering as an exchange, broker-dealer, and clearing agency, as well as selling unregistered securities related to its staking program.
According to Gurbir Grewal, director of the SEC’s division of enforcement, ignoring rules just because you don’t like them or want different ones is not acceptable. Coinbase was fully aware of the laws that apply to its business but intentionally chose not to follow them, which is harmful to investors. Coinbase earned billions through calculated decisions at the expense of investors who were deprived of their entitled protections.
Coinbase has requested for legislation regarding digital assets as a response to the lawsuit. “Coinbase’s Chief Legal Officer and General Counsel, Paul Grewal, stated that the SEC’s current method of relying solely on enforcement actions negatively impacts America’s economic competitiveness and companies like Coinbase. Grewal suggests that legislative action is necessary to establish transparent and fair regulations for the digital asset industry instead of relying on litigation. Coinbase will continue to function as usual in the meantime.
According to the SEC lawsuit, Coinbase traded 13 cryptocurrencies that are considered securities and required registration with the agency. This included popular cryptocurrencies like Solana, Cardano, and Polygon. The announcement of the lawsuit caused these cryptocurrencies to trade at lower prices.
How crypto trading could be impacted
The lawsuits could potentially cause a decrease in trading availability for certain crypto assets on the affected exchanges, which may have an impact on their liquidity. Due to the recent SEC accusations, investing in cryptocurrencies has become even more speculative, prompting investors to reconsider whether they are financially capable of taking such risks in their portfolios.
It is uncertain what will happen to the staking programs of both exchanges, as the SEC connected staking to the unregistered sale and offering of securities. Kraken, another crypto exchange, decided to terminate its staking program in the United States earlier this year as a component of its settlement with the SEC.