In a court filing, the SEC accused Coinbase of offering “at least nine” coins that might be categorized as securities. Bloomberg now reports that the SEC is investigating the US exchange.
In response to last week’s court filing, Coinbase requested the US financial authority to reconsider how it defines securities.
Coinbase Reportedly Facing SEC Probe
According to reports, the Securities and Exchange Commission has begun yet another onslaught on the bitcoin business. According to Bloomberg, citing three people familiar with the subject, the US financial authority has launched an inquiry to see if Coinbase allowed its users to trade cryptocurrency tokens that should have been registered as securities.
It comes only days after the SEC and DOJ jointly charged a former Coinbase employee and two of his colleagues with insider trading. According to the SEC’s court filing, Coinbase named “at least nine” crypto assets that may be classed as securities, echoing concerns issued by the agency’s chief Gary Gensler on many occasions over the last year.
According to Bloomberg, the SEC has been watching Coinbase closely since it began to offer a larger choice of crypto currencies for trading. The sources requested anonymity because the investigation has not been made public. The insider trading charges have dealt another blow to Coinbase, which has been chastised by the industry for its questionable asset listing procedure. In the past, prominent crypto celebrities like as Cobie have derided Coinbase’s choice of supported assets, while others have called for personnel responsible for processing its listings to be fired in response to the SEC’s revisions.
The Exchange denies listing securities.
Coinbase has frequently defended its activities, and a fresh blog post published this week denied that any assets offered on the exchange could be considered as securities. On July 21, the company’s Chief Legal Officer, Paul Grewal, published a blog post headlined “Coinbase does not list securities. That’s the end of the narrative.”
On the same day, the company issued a separate blog post encouraging the SEC to reconsider how it determines whether an asset qualifies as a security. The statement asserted that present U.S. securities legislation is “unsuitable for governing digital assets,” and it offered a link to a petition Coinbase has written to the SEC, requesting that new regulations for the crypto securities market be established.
The SEC now decides whether an asset should be classed as a security using the Howey test, which was established by the United States Supreme Court in a 1946 case. The Howey test, which is based on the 1933 Act, determines whether market players purchase an instrument (such as a crypto token) with the intention of profiting from the efforts of a third party.
According to the SEC, if an investor may acquire a crypto token with the expectation of profiting from the work of a central team, for example, such token may be categorized as a security under the Howey test. Because of Terra’s collapse and the larger industry’s washout, US regulators have been paying greater attention to the crypto area in recent months. Crypto’s market valuation has fallen from more than $3 trillion in November 2021 to just over $1 trillion today, raising concerns about whether regular investors are adequately safeguarded.
Following the SEC inquiry findings, Coinbase’s stock fell in pre-market trading. COIN is down 5.3% at press time, extending the hemorrhage it has seen alongside the rest of the market since its inception in April 2021. At its current trading price of $67, it is more than 80% below its all-time high, implying that it has fallen even further behind the troubled crypto stalwarts Bitcoin and Ethereum. Over the last year, Coinbase has been embroiled in a number of private and public spats with the US Securities and Exchange Commission.
SEC Investigation Confirmed by Coinbase
According to recent filings, the SEC subpoenaed Coinbase and demanded information and records relating to its business operations and products.
The largest US-based crypto exchange, Coinbase, is being investigated by the US regulator regarding its token listing process and specific client programs, according to a quarterly report issued by Coinbase on Wednesday.
“The Company has received investigative subpoenas and requests from the SEC for documents and information about certain customer programs, operations, and existing and planned future products, including the Company’s processes for listing assets, the classification of certain listed assets, its staking programs, and its stablecoin and yield-generating products,”
According to the company’s Q-10 report, which all public firms are required to file to the securities regulator at the conclusion of each fiscal quarter. The announcement follows the SEC’s accusation that Coinbase listed “at least nine” tokens that might be categorized as securities in an insider trading complaint against one of its former workers. Coinbase issued a blog post on July 22 criticizing the SEC of “regulation by enforcement” and a lack of defined standards for identifying securities. “Coinbase does not list securities. “End of tale,” the title of the post stated.
However, this is not Coinbase’s first conflict with the regulator. Coinbase’s chief legal officer, Paul Grewal, stated in a blog post in September 2021 that the SEC had threatened to sue the exchange over its planned Coinbase Lend service, without explaining why.
“After months of fruitful engagement by Coinbase, the SEC issued what’s known as a Wells notice regarding our planned Coinbase Lend program,” Grewal said. A Wells notice is an official mechanism used by a regulator to notify a firm that it intends to sue it. Grewal stated that the exchange was thrown off guard by the SEC’s “promise to suit without ever explaining why.”
According to quarterly report, the SEC is now investigating not only Coinbase’s listing process and listed assets, but also its staking, stablecoin, and yield-generating products, which are likely to be unregistered securities. In its filing, Coinbase stated that the results of the inquiry remain undetermined and that the company cannot assess the probe’s possible impact on its operations. The firm thinks that the inquiry’s final result will not have a “substantial adverse effect” on the company’s operations or profitability, despite the fact that the probe may affect it in the short term.