In more blow to the cryptocurrency sector, two of its biggest players were sued this week by the Securities and Exchange Commission: On Monday, the agency filed charges against the world’s largest exchange, Binance, and the next day it sued Coinbase. publicly accused. Exchange listed in the United States for violating securities laws.
SEC Chairman Gary Gensler has long insisted that most crypto tokens are securities, and therefore fall under the agency’s jurisdiction. Many digital asset enthusiasts – including some regulators and lawmakers – say Mr. Gensler is overreacting.
There are notable parallels to this week’s cases. The SEC has accused both Binance and Coinbase of operating securities exchanges and selling digital assets that it says should have been registered. But in its lawsuit against Binance, the SEC also accused its chief executive, Changpeng Zhao, of civil fraud, while its case against Coinbase does not allege fraud or name the company’s chief executive, Brian Armstrong, as a defendant. does.
Here’s what we know so far about the SEC’s crackdown on crypto activities.
The SEC accused Coinbase of operating as an unregistered broker.
The SEC said Coinbase made billions of dollars facilitating the sale of crypto assets as an unregistered exchange and deprived investors of important protections. The agency has argued that most crypto products are no different from stocks, bonds and other securities, and companies that offer them must register with the agency and make disclosures like any traditional exchange or brokerage.
Coinbase and the SEC have long been in a public battle over the agency’s stance on digital assets. Last year, Coinbase petitioned the SEC for new regulations and in April sued the agency for failing to act on that petition.
The company is lobbying Congress and demanding legislation. Paul Grewal, Coinbase’s chief legal officer, testified before the House Agriculture Committee on Tuesday about a draft bill released last week, in which he said the rules would be “clear in practice, not just theory.” Mr. Grewal said, “The solution is law, not litigation.”
Binance is being criticized for nearly a dozen securities charges.
Binance is accused of funneling billions of dollars of customer funds to a company owned by Mr. Zhao. The SEC charged Mr. Zhao as well as the company, and accused Binance of nearly a dozen other violations, including misleading investors about the adequacy of its systems to detect and control deceptive trading .
In addition to those charges, Binance, like Coinbase, has been accused of operating an unregulated exchange and issuing cryptocurrencies that the agency said should have been registered as securities. Among them was its own token, which trades alongside BNB as 10 other popular tokens, binance denies the allegations, On Tuesday the SEC sought a temporary injunction from a federal court Freezing Binance’s US Assets,
The Commodity Futures Trading Commission also accused Binance of violating commodity laws in March.
What about FTX?
The allegations of mismanagement of customer funds against Binance are somewhat reminiscent of those leveled against the FTX crypto exchange and its founder Sam Bankman-Fried. But Mr. Bankman-Fried, unlike Mr. Zhao, faces criminal fraud and conspiracy charges as well as campaign finance law violations.
Prosecutors said Mr Bankman-Fried had misappropriated billions of dollars in FTX client funds to his trading firm, Alameda Ventures, and that Alameda used the misappropriated funds to make risky, highly leveraged bets. Was.
what happens next?
Binance Says SEC Was Trying To “Unilaterally Define Crypto Market Structure” Headline Enforcement Actions And the company vowed to “vigorously defend our platform,” it wrote in a post on its website on Monday.
Coinbase has similarly stated that it intends to fight back and that it will continue to lobby Congress for new legislation. Companies hope the crypto law will help remove the taint of recent scandals and legitimize the industry, which has a reputation for lawlessness.
But lawmakers don’t share the sense of urgency, and regulation can be slow. Enforcement action can go on before any bills are passed, leaving hotly debated questions for the federal courts.
From an industry perspective, that indirect route may be dead. The Supreme Court has shown a willingness to limit the agency’s power, and crypto lobbyists are very aware of the implications. Next term, the justices will reconsider a principle that currently requires courts to defer to agency expertise, which could further reduce administrative authority.
“We are witnessing a potential erosion of one of the key tenets of our jurisprudence and a potential change in the scope of authority of administrative agencies,” said Sheila Warren, chief executive of the Crypto Council for Innovation, the Washington lobbying group that represents Coinbase. and others. She said, “It’s going to be wild.”