Coinbase, one of the world’s largest cryptocurrency exchanges, has been sued by US regulators a day after the Securities and Exchange Commission (SEC) alleged Binance and its founder had broken trading laws.
The SEC has accused Coinbase of illegally operating without having first registered with the regulator, a legal requirement for companies trading securities in the US.
The regulator’s chairman Gary Gensler said: “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.”
Shares in the crypto exchange tumbled more than 16pc in premarket trading after the lawsuit was filed in Manhattan federal court.
The charges come just one day after the world’s largest crypto exchange, Binance, was similarly accused by the SEC of breaking US securities laws.
Binance and its founder Changpeng “CZ” Zhao were accused of orchestrating a “web of deception” as the SEC charged them with misusing investor funds, operating as an unregistered exchange and violating securities regulations.
Responding to a post from Mr Gensler on Twitter announcing the SEC’s case against Binance, Mr Zhao said: “Wonder if he ever reads the comments under his post, from the consumers he is suppose [sic] to protect.”
Mr Zhao added in a separate post addressing the Coinbase lawsuit on Tuesday: “If you have to pick a fight with everyone, maybe you are the one at fault.”
In court filings the SEC claimed Binance’s former chief compliance officer Samuel Lim, who left the company last year, messaged a colleague in December 2018 saying: “We are operating as a fking unlicensed securities exchange in the USA bro”. [sic]
Investors have pulled around $780m (£628m) from Binance in 24 hours following the SEC’s charges, data company Nansen said.
The price of bitcoin has fallen by about 5pc since Monday to trade at around £20,500 on Tuesday afternoon. In April, the cryptocurrency was worth £24,500.
The lawsuit filed by the SEC lists thirteen charges against Binance, including mingling and diverting customer assets to an entity Mr Zhao owned called Sigma Chain.
The charges echo accusations levelled at FTX, once the world’s second largest cryptocurrency exchange, and its founder Sam Bankman-Fried after its collapse last year.
In a social media post, Binance said that it has been cooperating with the SEC’s investigation but said that the regulator “chose to act unilaterally and litigate”.
Paul Grewal, Coinbase’s chief legal officer, said: “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.”
He added: “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”.
