‘You simply can’t ignore the rules because you don’t like them’: SEC sues Coinbase over securities law a day after suing Binance

The Securities and Exchange Commission on Tuesday filed a lawsuit against Coinbase, alleging that the crypto exchange was operating as a broker, national securities exchange, and clearing agency without registering with the agency.

The SEC further alleges that different crypto assets offered on Coinbase are unregistered securities, including popular cryptocurrencies such as Solana and the native tokens of Cardano and Polygon.

The lawsuit comes a day after the SEC filed suit against Coinbase rival Binance and less than three months after Coinbase disclosed it had received a Wells Notice from the SEC—a document the agency uses to inform firms that they’re facing a legal investigation.

“Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC,” Chair Gary Gensler said in a statement.

In premarket trading, Coinbase shares had fallen 16%.

The lawsuit delivers yet another blow to the reeling crypto industry, with Coinbase long presenting itself as a legally compliant player in the volatile sector.

The suit was filed in the U.S. District Court for the Southern District of New York.

“You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: The consequences for the investing public are far too great,” Gurbir S. Grewal, director of the SEC’s division of enforcement, said in a statement.

“The SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance,” said Paul Grewal, Coinbase’s chief legal officer, in a statement shared with Fortune. “The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation. In the meantime, we’ll continue to operate our business as usual.”

According to the 101-page complaint, Coinbase has made billions of dollars by combining the traditional services of financial firms but without registering those offerings with the SEC, thus depriving investors of significant protections.

Following a similar February enforcement action against competitor Kraken, the SEC also alleges Coinbase has offered unregistered securities through its staking-as-a-service program, where customers can earn profits through the proof-of-stake model of different blockchains, including Ethereum.

When the SEC issued its Wells Notice in March, a person close to Coinbase, who spoke on the condition of anonymity, told Fortune that the agency’s decision to go after the company was likely tied to its decision to expand offshore operations. In May, Coinbase launched its international exchange in Bermuda to offer derivatives products not available in the U.S.

Coinbase has argued that its staking service is different from Kraken’s because it doesn’t hold customer assets, instead providing software that allows users to participate in staking activities.

Since the SEC homed in on Coinbase, the U.S. exchange has pushed back against the agency, including a lawsuit against the SEC in April to compel the agency to engage in rulemaking. “We’re absolutely convinced the SEC is violating the law; we feel like we have no choice but to take them to court,” Coinbase’s Grewal told Fortune at the time.

In its lawsuit on Tuesday, the SEC also expanded its list of tokens considered to be securities to include SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO. The SEC had previously included many popular cryptocurrencies in its suit against Binance on Monday, a move that will likely force brokers to rethink listing the tokens, which might depress their liquidity and price.

The Alabama Securities Commission also announced on Tuesday that it had issued an order to Coinbase to demonstrate why its staking rewards program did not constitute an unregistered securities product. The action was advanced in a multistate task force with 10 other states, including California.

This story was originally featured on Fortune.com

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