SEC Sues Coinbase and Binance, Two Largest Crypto Exchanges

Coinbase and Binance face a slew of allegations of violating U.S. securities law.

Leading cryptocurrency exchanges Coinbase and Binance are no strangers to controversy, as they tower over the battered crypto sector.

Coinbase leadership was recently accused of insider-trading $1 billion of company stock, according to Bloomberg News, on top of the company's previous receipt of an SEC "Wells Notice" for potential securities law violations, as reported by Forbes.

Binance's lengthy string of eyebrow-raising episodes, catalogued by Axios, include a market manipulation warning from the NY attorney general and a leaked document allegedly detailing an elaborate plan to deceive regulators.

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Despite all the smoke, U.S. authorities have been slow or hesitant to respond. That hesitance ended this week, when the SEC cracked down hard on the two crypto giants for varying, alleged violations of U.S. securities law.

On Tuesday morning, the SEC charged Coinbase with several violations of securities law, in a complaint alleging the company made billions of dollars since at least 2019 illegally handling crypto "asset securities" transactions.

The charges include:

On Monday morning, the SEC charged Binance with a more extensive list of 13 securities law violations. The affected entities include Binance Holdings Ltd., its U.S.-based affiliate BAM Trading Services Inc., and their founder and CEO, Changpeng Zhao.

The charges include:

Following the SEC's Tuesday announcement, Coinbase chief legal officer Paul Grewal remarked "it's disappointing but not surprising that the SEC has decided to bring legal action against Coinbase today," according to Yahoo Finance.

Meanwhile, Coinbase CEO Brian Armstrong hit back on Twitter, writing, "Regarding the SEC complaint against us today, we're proud to represent the industry in court to finally get some clarity around crypto rules...Instead of publishing a clear rulebook, the SEC has taken a regulation by enforcement approach that is hurting America. So if we need to avail ourselves of the courts to get clarity, so be it."

Binance responded to its own charges in a company blog post just after the SEC'sannouncement on Monday. The company stated, "From the start, we have actively cooperated... Recently, we engaged in extensive good-faith discussions to reach a negotiated settlement." It also noted, "We are disappointed" in the SEC's actions to "act unilaterally and litigate."

Binance pledged to defend itself and criticized the SEC as "misguided" in its "refusal to provide much-needed clarity and guidance to the digital asset industry." The company then went further, contending, "The SEC's actions undermine America's role as a global hub for financial innovation and leadership."

The company ultimately promised to continue cooperating with regulators around the globe "because that is the right thing to do."

"The SEC has taken a regulation by enforcement approach that is hurting America...if we need to avail ourselves of the courts to get clarity, so be it."

Both Binance and Coinbase are experiencing a hugely consequential reckoning with federal regulators. Axios reports depositors have withdrawn hundreds of millions of dollars worth of cryptocurrencies from both exchanges since 9 a.m. Monday.

Still, despite the threat of regulatory crackdowns, Axios also reports that very few crypto firms have registered with the SEC as securities brokers. Crypto industry leaders have often stated their intention to disrupt or even supplant the global financial system, so it's natural they would attempt to play by their own set of rules.

However, it's also unclear what benefits these exchanges get from registering, as federal agencies take longer and longer to promulgate concrete regulations covering the crypto space. The chief counsel of Ripple, a crypto firm locked in a lengthy battle with the SEC, told Blockworks that his advice for emerging crypto companies is, "Don't launch [crypto projects] in the U.S...It's not a level playing field."

"Don't launch [crypto projects] in the U.S...It's not a level playing field."

This episode is a reminder for individual investors that the cryptocurrency industry is still the Wild West, where even the biggest global players allegedly ignore the few concrete rules that govern the sector. And there's no easy way for crypto owners to get back their assets if they get scammed or a major exchange goes bust, unlike customers of the heavily regulated, FDIC-backed U.S. banking system.

Here are a few ways to protect your crypto assets:

Ben Demers manages digital content and engagement at Kiplinger, informing readers through a range of personal finance articles, e-newsletters, social media, syndicated content, and videos. He is passionate about helping people lead their best lives through sound financial behavior, particularly saving money at home and avoiding scams and identity theft. Ben graduated with an M.P.S. from Georgetown University and a B.A. from Vassar College. He joined Kiplinger in May 2017.

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