SEC cracks down on crypto with lawsuits against Coinbase, Binance

(Reuters) — The U.S. Securities and Exchange Commission sued cryptocurrency platform Coinbase on Tuesday, the second lawsuit in two days against a major crypto exchange, in a dramatic escalation of a crackdown on the industry and one that could dramatically transform a market that has largely operated outside regulation.

The SEC on Monday took aim at Binance, the world’s largest cryptocurrency exchange. The SEC accused Binance and its CEO, Changpeng Zhao, of operating a “web of deception.”

If successful, the lawsuits could transform the crypto market by successfully asserting the SEC’s jurisdiction over the industry, which for years has argued that tokens do not constitute securities and should not be regulated by the SEC.

“The two cases are different but overlap and point in the same direction: the SEC’s increasingly aggressive campaign to bring cryptocurrencies under the jurisdiction of the federal securities laws,” said Kevin O’Brien, a partner at Ford O’Brien Landy and a former federal prosecutor. “If the SEC prevails in either case, the cryptocurrency industry will be transformed.”

In its complaint filed in Manhattan federal court, the SEC said Coinbase has since at least 2019 made billions of dollars by operating as a middleman on crypto transactions, while evading disclosure requirements meant to protect investors.

The SEC said Coinbase traded at least 13 crypto assets that are securities that should have been registered, including tokens such as Solana, Cardano and Polygon.

Coinbase suffered about $1.28 billion of net customer outflows following the lawsuit, according to initial estimates from data company Nansen.

Paul Grewal, Coinbase’s general counsel, said in a statement that the company will continue operating as usual and has “demonstrated commitment to compliance.”

Tuesday’s SEC lawsuit seeks civil fines, the recouping of ill-gotten gains and injunctive relief.

On Monday, the SEC accused Binance of inflating trading volumes, diverting customer funds, improperly commingling assets, failing to restrict U.S. customers from its platform, and misleading customers about its controls.

Binance pledged to vigorously defend itself against the lawsuit, which it said reflected the SEC’s “misguided and conscious refusal” to provide clarity to the crypto industry.

Customers pulled around $790 million from Binance and its U.S. affiliate following the lawsuit, Nansen said.

On Tuesday, the SEC filed a motion to freeze assets belonging to Binance.US, Binance’s U.S. affiliate. The holding company of Binance is based in the Cayman Islands.