According to three persons with knowledge of the situation, Coinbase Global Inc. is under investigation by the US government to determine if it inappropriately lets Americans trade digital assets that ought to have been registered as securities.
Since a former employee and two of his accomplices were detained last week on suspicion of wire fraud, Coinbase has been the target of the regulator’s attention.
If the alleged offense includes securities, the SEC also filed a complaint charging insider trading, which falls under its scope. But according to Bloomberg, which cites unidentified sources, the SEC’s enforcement probe against Coinbase predates the agency’s inquiry that resulted in the insider trading allegations.
Coinbase hasn’t opened up about the matter
There is continuing discussion about which cryptocurrencies should be treated as securities. The SEC made a bold move by designating nine cryptocurrencies—seven of which are now listed by Coinbase—as securities as part of the insider trading investigation that was made public last week.
Coinbase was emphatic that it does not offer securities in a blog post on July 21. According to the article by Coinbase Chief Legal Officer Paul Grewal, “Coinbase has a comprehensive procedure to assess and approve each digital asset before making it available on our exchange. The SEC itself has reviewed this process.” “But the SEC rushed right into a lawsuit rather than engaging with us about the seven assets on our platform.”
The SEC uses a legal standard that was established by a 1946 US Supreme Court case to determine whether a digital asset qualifies as a security.
According to that paradigm, the agency views a token as usually falling under SEC jurisdiction when investors contribute funds to a corporation with the goal of benefitting from the leadership of the organization.
Gary Gensler, the chairman of the Securities and Exchange Commission, has long argued that many cryptocurrencies are actually unregistered securities.
Gensler has encountered opposition from the sector and from the Commodity Futures Trading Commission, a rival regulator that has called for greater coordination among agencies in regulating the crypto industry.