The U.S. Securities and Exchange Commission (SEC) is investigating cryptocurrency exchange Coinbase for allowing Americans to trade cryptocurrencies that should be registered as securities, Bloomberg reported, citing three people familiar with the matter.
The SEC’s scrutiny of Coinbase has increased since Coinbase expanded its offering of trading coins, two people who spoke on the condition of anonymity said. The SEC declined to comment on the news, and a Coinbase spokesman told Reuters that the company does not list securities on its platform.
The Blocker reported last week that Ishan Wahi, a former product manager at Coinbase, was arrested in connection with insider trading, and that at least nine of the 25 digital assets involved in the SEC’s claim are unregistered securities.
Coinbase denied this, saying that the platform has a very strict listing review process, and the SEC itself has reviewed this process, but directly accused Coinbase of listing without any dialogue. Unregistered securities, refuting that the SEC did not provide clear or workable rules to define which digital assets are securities.
However, the source, who requested anonymity on the grounds that the “investigation has not been publicly disclosed,” said that the SEC’s investigation into Coinbase had been launched long before the insider trading case, and that Coinbase had previously disclosed that it “has received an investigation subpoena from the SEC, Requests for documentation and information regarding certain client plans, operations and product planning, including the company’s stablecoins and revenue-generating products.”
As the cryptocurrency market plummets, wiping out hundreds of billions of dollars in overall market value, calls are growing for U.S. authorities to do more to regulate cryptocurrencies. SEC Chairman Gary Gensler has said in the past that many cryptoassets have securities attributes, but has yet to specify which cryptocurrencies are securities.
Generally speaking, if a cryptocurrency is deemed a security by regulators, it becomes a financial instrument that must be registered with the SEC and subject to strict disclosure regimes before it can be legally sold to the public.
Earlier, U.S. Senator Patrick Toomey criticized that the SEC’s lack of transparent regulatory mechanisms will make it difficult for investors and industry players to comply. In this regard, technology billionaire Mark Cuban responded that the SEC will regulate the registration method of cryptocurrencies, which will be a nightmare for the cryptocurrency industry.
As the largest cryptocurrency exchange in the United States, Coinbase allows Americans to trade more than 150 coins. If these products are considered securities, Coinbase may need to register as an exchange with the SEC.
