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by Jon Blistein
In its crackdown on cryptocurrency, the Securities and Exchange Commission has brought charges against Coinbase and other major exchanges.
Coinbase is a broker and securities clearing agent since 2019 but it has not been registered by the SEC. The SEC claims that Coinbase “deprived investors” of important protections such as SEC inspections and record-keeping requirements.
Coinbase’s claim that it works simultaneously as an exchange broker and clearing agency is a key safeguard. According to the complaint, these three functions are usually separated on traditional markets for securities. The SEC noted that the main reason to separate these functions was “to avoid conflicts of interests which can arise when they merge.”
Gary Gensler, SEC chair, said that Coinbase illegally combined and offered exchange, brokerage, and clearinghouse services despite its compliance with securities laws. These functions are separated in other areas of the securities market. Coinbase’s supposed failures have deprived investors of important protections. These include rulebooks to prevent fraud, manipulation and disclosure. They also lack conflict-of-interest safeguards and regular SEC inspections.
Paul Grewal commented about the accusations made against Coinbase: “We think that the SEC model, which relies solely on enforcement, without providing clear guidelines to the digital asset sector, is detrimental to the US economic growth, and businesses like Coinbase with a track record for conforming regulations. Laws that are established properly through an open dialogue, and then applied consistently is the best solution. Litigation does not work. In the interim, we will continue to operate as normal.”
Coinbase has dropped all charges filed against Binance and Changpeng Zhao (CEO/founder of the largest cryptocurrency exchange in the world) a day after SEC brought 13 charges. According to the SEC, Binance also misled customers and misused funds by allowing some of its best traders to use its unregulated exchange.
Zhou, who is a high-profile person, has kept a low profile. But that changed in recent months. Zhou has a very high profile but has kept a low-profile. This has changed recently, particularly after Binance’s former rival, FTX collapsed, and the co-founder of FTX Sam Bankman Fried (who has pleaded guilty to many fraud and campaign financing charges) was arrested.
Chris Van Hollen, Maryland senator, said in a Rolling Stone statement, “Clearly CZ was lurking behind the scenes.” Binance is hard to pinpoint, and it’s not easy to know what they do. He continued: “We’ve just gone through [Silicon Valley Bank] bankruptcy, and it was well regulated. At least there was some sort of review process in place.” Binance is a case where there are no details. It’s a black-box, and I am worried about its failure. “There could be lots of money at stake.”
