Crypto Crackdown: Lawsuits Against Coinbase and Binance Shake Markets

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In further blows to the cryptocurrency industry, two of its biggest players were sued this week by the Securities and Exchange Commission: On Monday, the agency filed charges against Binance, the world’s largest exchange , and the next day she accused Coinbase, the only public exchange listed in the United States, of violating securities laws.

SEC Chairman Gary Gensler has long insisted that most crypto tokens are securities and therefore fall under the purview of agencies. Many digital asset enthusiasts, including some regulators and lawmakers, say Gensler is going too far.

There are notable similarities between this week’s cases. The SEC accuses both Binance and Coinbase of operating stock exchanges and selling digital assets that it says should have been registered. But in its lawsuit against Binance, the SEC also accuses its chief executive, Changpeng Zhao, of civil fraud, while its filing against Coinbase does not claim fraud or name the company’s chief executive, Brian Armstrong, as a defendant.

Here’s what we know so far about the SEC’s crackdown on crypto activity.

The SEC accuses Coinbase of operating as an unregistered broker.

The SEC said Coinbase made billions of dollars by facilitating the sale of crypto assets as an unregistered exchange and stripping investors of significant protections. The agency argued that most crypto products are no different from stocks, bonds and other securities, and that companies offering them must register with the agency and make accompanying disclosures. , like any traditional exchange or brokerage.

Coinbase and the SEC have fought a long public battle over the agencies’ position on digital assets. Last year, Coinbase petitioned the SEC for new rules, and in April it sued the agency for failing to act on that petition.

The company lobbied Congress and pushed for legislation. Coinbases Chief Legal Officer Paul Grewal testified before the House Agriculture Committee on Tuesday about a bill released last week that he said would clarify the rules in practice, not just in the theory. Mr Grewal added: “The solution is legislation, not litigation.

Binance is under fire for a dozen securities charges.

Binance is accused of funneling billions of dollars of customer money to a company separately owned by Mr. Zhao. The SEC charged Mr. Zhao and the company, and accused Binance of about a dozen other violations, including misleading investors about the adequacy of its systems to detect and monitor manipulative transactions. .

In addition to these charges, Binance, like Coinbase, is accused of operating an unregulated exchange and issuing cryptocurrencies that the agency says should have been registered as securities. Among them was its own token, which trades as BNB, along with around 10 other popular tokens. Binance denies the charges. On Tuesday, the SEC asked a federal court for a temporary order freezing Binances’ U.S. assets.

The Commodity Futures Trading Commission also accused Binance of violating commodity laws in March.

What about FTX?

Accusations of mismanagement of customer funds against Binance are somewhat reminiscent of accusations made late last year against crypto exchange FTX and its founder, Sam Bankman-Fried. But Mr. Bankman-Fried, unlike Mr. Zhao, faces charges of criminal fraud and conspiracy, as well as campaign finance law violations.

Prosecutors said Mr. Bankman-Fried siphoned off billions of dollars in funds from FTX clients to his trading company, Alameda Ventures, and that Alameda used the embezzled funds for risky, high-leverage bets.

What happens next?

Binance said the SEC was trying to unilaterally define the structure of the crypto market with headline-grabbing enforcement actions and pledged to vigorously defend our platform, the company wrote in a post on its website on Monday.

Coinbase also said it intended to fight back and would continue to press Congress for new legislation. The companies hope the crypto legislation will help remove the stain of recent scandals and legitimize the industry, which has a reputation for lawlessness.

But not all lawmakers share this sense of urgency, and regulation can be slow. Enforcement actions could take place before any bills pass, leaving hotly debated issues to the federal courts.

From an industry perspective, this indirect route may end up working. The Supreme Court has shown its willingness to limit the power of the agency, and crypto lobbyists are keenly aware of the implications. In the next term, judges will reconsider a doctrine that currently requires courts to defer to the agency’s expertise, which could further restrict administrative authority.

We are witnessing the potential erosion of one of the major principles of our jurisprudence and a possible change in the scope of the authority of administrative agencies, said Sheila Warren, chief executive of the Crypto Council for Innovation, a group of pressure from Washington representing Coinbase and others. She added, it’s going to be wild.

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