SEC bares sharp teeth with escalation of case against Coinbase and Binance

The Securities and Exchange Commission (SEC), which this week launched aggressive legal pursuits of both Binance and Coinbase, demonstrates what we can expect to see in US policy setting for the immediate future.

SEC bares sharp teeth with escalation of cases

The separate lawsuits mark its most aggressive legal assault on the digital asset market.

The SEC accused Binance and Coinbase of violating US securities laws, offering unregistered securities and operating as unregistered venues, among other charges.

The two companies account for half of global trading in digital assets.

Binance was also accused of mixing billions of dollars of customer cash with a separate trading firm owned by its chief executive and inflating its US platform’s trading volume.

The cases are the most high profile enforcement actions by the agency after repeated warnings from chair Gary Gensler that crypto exchanges and the tokens they were trading were likely falling foul of US federal laws.

After his appointment two years ago, Gensler frequently urged platforms to register with the agency and flagged that most digital tokens qualify as securities. His language hardened in recent months after the failure of the FTX crypto exchange last November.

After two big lawsuits in two days, the former Goldman Sachs banker-turned-regulator, who built a reputation in Washington for a hard-charging approach, was strident.

“We don’t need more digital currency,” Gensler said. “We already have digital currency. It’s called the US dollar. It’s called the euro or it’s called the yen, they’re all digital right now.”

Critics have bristled at the SEC’s approach, accusing the agency of failing to define the rules for their long-term policy for the crypto industry and instead regulating the market through enforcement actions.

“Regulation by enforcement is not an appropriate way to govern a market,” said Glenn Thompson, chair of the House of Representatives Committee on Agriculture at a hearing on the future of digital assets in Washington.

One of the crypto industry’s biggest complaints has been a perceived lack of clarity from the US regulator over what counts as a security.

With the two lawsuits, the SEC laid out a list of more than a dozen coins it considers securities, including popular crypto tokens Solana, Cardano and Polygon.

By naming them, some lawyers think the agency has left the door open to target other crypto trading venues.

“These are complaints that strike to the very heart of the crypto exchange business model,” said Peter Fox, partner at law firm Scoolidge, Peters, Russotti & Fox, in an interview with the FT.

“They didn’t choose obscure digital assets that might only be on Binance to make their case, they chose well known, widely traded assets that are likely to be listed on many exchanges.”

But Gensler believes existing rules are sufficiently clear. “I think there’s been clarity for years,” Gensler told CNBC, adding that investors are protected by securities laws and “crypto should be no different”.

Both exchanges have indicated they will fight the SEC’s charges in court. Coinbase has also said it will continue to lobby politicians to pass clearer rules for the crypto market in the US.

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