On Tuesday, Coinbase's stock fell by 21% after the Securities and Exchange Commission (SEC) filed a lawsuit against the company for allegedly operating as an unregistered exchange and offering unregistered securities to its users. The SEC claims that Coinbase's alleged failures have deprived investors of critical protections, such as safeguard against conflicts of interest, routine inspection by the SEC, proper disclosure, and rulebooks that prevent fraud and manipulation. This enforcement action comes one day after the SEC sued Binance, another crypto exchange, for also running an unregistered crypto exchange and offering unregistered securities to investors.
Coinbase has been under investigation by the SEC for months and received a Wells notice from the agency in March, suggesting that an enforcement action was imminent. The company's staking yield program was also sued for being an unregistered sale and offering of securities to its users. Other crypto stocks, such as MicroStrategy and Riot Platforms, also sold off on Tuesday, while crypto tokens like bitcoin and ether fell by about 1%.
The SEC's actions against Coinbase and Binance demonstrate the agency's commitment to regulating the crypto industry and protecting investors from potential fraud and manipulation. However, some critics argue that the SEC's regulatory framework for the industry is unclear and may stifle innovation. It remains to be seen how the lawsuit against Coinbase will play out and what impact it will have on the broader crypto industry. Nevertheless, the market's reaction to the news highlights the potential risks associated with investing in cryptocurrencies and the need for investors to exercise caution.