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Monday, Oct 14, 2024
Mugglehead Magazine
Alternative investment news based in Vancouver, B.C.

Bitcoin

U.S. Securities and Exchange Commission sues Binance and Coinbase

These lawsuits could establish the SEC’s jurisdiction over the cryptocurrency industry

U.S. Securities and Exchange Commission sues Binance and Coinbase
The Securities and Exchange Commission building. Image via

The U.S. Securities and Exchange Commission (SEC) fired the latest volley in its ongoing struggle with cryptocurrency aligned companies.

On Monday, the SEC initiated enforcement actions against two leading digital asset platforms, Binance and Coinbase (NASDAQ: COIN) making a crucial step in solidifying its legal position against the crypto industry.

The SEC took action against the companies for engaging in multiple roles registering under any of these categories in the United States. This has been a consistent concern raised by SEC Chair Gary Gensler, who has criticized crypto firms for providing comprehensive services that often lead to conflicts of interest with their customers.

“We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer and clearinghouse functions,” Gensler said in a Tuesday statement.

Officially, the SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, alleges that Coinbase violated registration provisions in the Securities Exchange Act of 1934. Also, that Coinbase violated the securities offering registration provisions of the Securities Act of 1933.

The SEC initiated the lawsuit against Coinbase just one day after filing a separate lawsuit against Binance, the largest cryptocurrency exchange globally, along with its founder, Changpeng Zhao. Subsequently, on Tuesday, the regulator sought a court order from a federal court in Washington D.C. to freeze Binance’s assets in the United States.

If these lawsuits succeed they have the potential to bring about a significant transformation in the crypto market by establishing the SEC’s jurisdiction over the industry. The argument posed by many companies in the space is that tokens are not securities and should not fall under SEC regulations.

The enforcement actions against both Binance and Coinbase share a significant overlap in terms of the SEC’s core argument against the crypto industry’s business model conflicting with established securities laws.

Read more: Tether invests in sustainable Bitcoin mining in El Salvador

Read more: CoinEX launches first crypto trading platform in Hong Kong since 2021 crackdown

A few crypto companies have gotten licenses as alternative trading systems

According to the SEC, virtually every business activity conducted by crypto platforms should be registered with the agency and comply with securities regulations under its supervision.

This argument has been reiterated in previous enforcement actions, speeches and discussions by the SEC over several months. Furthermore, the SEC asserts that almost every crypto asset handled by these platforms should also be registered as securities.

Although there are a few crypto companies that have obtained licenses as alternative system trading systems, which are trading platforms used by brokers for trading listed securities, there is currently no crypto platform functioning as a fully-fledged stock exchange. A few of these include eToro, Uphold and Bybit.

Additionally, this year, the SEC filed lawsuits against Beaxy Digital and Bittrex Inc. for their failure to register as an exchange, clearinghouse and broker.

Additionally, a task force comprised of ten states is investigating Coinbase.

As part of this task force, the Alabama Securities Commission has issued a show cause notice to Coinbase, granting it a period of 28 days to provide an explanation as to why it should not be required to “cease and desist from selling unregistered securities in Alabama.”

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