US SEC Investigates Coinbase Over Unregistered Securities Listings

Key Insights:

• Coinbase is facing an SEC probe for reportedly listing unregistered securities.
• The regulator is looking into an alleged insider trading scheme revealed last week.
• SEC’s scrutiny has increased since Coinbase expanded the number of trading tokens.

Crypto trading platform Coinbase (COIN) is facing a fresh probe from the US Securities and Exchange Commission (SEC) over allegedly listing unregistered securities.

Per a Bloomberg report, the largest U.S.-based cryptocurrency trading platform, Coinbase, has boosted its token offerings in the recent past. This has triggered SEC to investigate whether the exchange has prompted Americans to trade tokens that should have been registered as securities, two sources familiar with the matter said.

Probe predates insider trading lawsuit

The recent probe by the SEC’s enforcement unit predates last week’s investigation into insider trading charges against a former Coinbase product manager and two others.

The accused perpetrated a scheme to trade ahead of multiple announcements regarding certain crypto assets that would be made available for trading on the Coinbase platform, SEC’s announcement read.

“[The perpetrators] allegedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them shortly after the announcements for a profit.”

However, Coinbase firmly stated that the company “does not list securities. Period.”

Paul Grewal, Chief Legal Officer at Coinbase, noted last week that seven of the nine digital assets claimed by the SEC are listed on Coinbase. He continued,

“None of these assets are securities. Coinbase has a rigorous process to analyze and review each digital asset before making it available on our exchange — a process that the SEC itself has reviewed.”

Coinbase also questioned SEC by filing a petition to state a workable regulatory framework for digital asset securities clearly.

Laws from the 1930s couldn’t predict crypto. That’s why we filed a petition to @SECGov to issue securities rules that work for crypto securities and unlock a new market for US consumers, developers, and platforms. @faryarshirzad explains 👇 https://t.co/tauZjN5ZQV

— Coinbase (@coinbase) July 25, 2022

Coinbase has been facing scrutiny from the regulator, and the firm noted in its first-quarter earnings report that it had received “investigative subpoenas from the SEC.”

The regulator had demanded “information about certain of our customer programs, operations, and intended future products, including our stablecoin and yield-generating products,” it noted.

Securities – as opposed to other assets like commodities – are strictly regulated and require detailed disclosures to inform investors of potential risks.

In 2017, the then SEC Chair Jay Clayton warned crypto exchanges that many of their digital assets qualified as securities and therefore require registration under federal securities laws. However, in 2018, Clayton clarified in an interview with CNBC that cryptos are “commodities rather than securities.” This includes digital assets such as bitcoin (BTC), ether (ETH), and litecoin (LTC).

However, the SEC has not clarified which coins fall under securities, and crypto platform operators are looking for a clear digital-asset rule to avoid listing unregulated assets.