HomeCrypto NewsExchangesCoinbase Faces SEC Investigation As Federal Agency Accuses Exchange Of Trading Tokens Deemed As Securities

Coinbase Faces SEC Investigation As Federal Agency Accuses Exchange Of Trading Tokens Deemed As Securities


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SEC Accuses Coinbase Allowing People To Trade Tokens Deemed As Securities – Will There Be A Lawsuit?

Bloomberg reports that the popular crypto exchange, Coinbase, is facing an Investigation from US SEC for listing tokens considered as securities which can turn into a lawsuit.

The US SEC (Securities and Exchange Commission) seems to be overdoing itself when it comes to targeting the crypto market for any incidents of misdeeds. For years, the institution has been called upon to keep a keener eye on the budding market. Now, crypto entities, including exchanges and developer companies, are catching its attention in more ways than one.

The latest company to attract the attention of the SEC is Coinbase, which happens to be the largest crypto exchange in the US. The SEC accuses Coinbase of listing tokens that could be classified as securities and allowing people to trade with them on the platform. For this reason, it’s possible that SEC could file a case against Coinbase.

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As reported by TheCryptoBasic, “The nine crypto assets fingered by the SEC as securities include; Power Ledger’s POWR token, Flexa’s AMP token, Rally’s RLY token, DerivaDEX’s DDX token, XY Labs’ XYO token, Rari Capital’s RGT token, Liechtenstein Cryptoassets Exchange’s LCX token, DFX Finance’s DFX token, and Kromatika Finance’s KROM token.”

“Coinbase Does Not List Securities”

On its part, Coinbase maintains that it doesn’t list securities. This was conveyed in a recent blog entry crafted by the exchange’s Chief Legal Officer, Paul Grewal. This came after SEC charged a former executive of the exchange with insider trading where he tipped off his brother, a friend, to buy some cryptos right before they were listed on exchanges. Out of the nine tokens involved, seven are listed on Coinbase. Coinbase says none of these is security. SEC claims otherwise.

A part of the blog entry by Coinbase’s legal officer reads,

“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. This process includes an analysis of whether the asset could be considered to be a security and also considers regulatory compliance and information security aspects of the asset. To be explicit, the majority of assets that we review are not ultimately listed on Coinbase.”

Trading Platforms Should Protect Investors

While various entities in the crypto industry have called on SEC to formulate appropriate regulatory policies for the space, the regulator has often called upon trading platforms like exchanges to develop frameworks to protect retail investors. This is incredibly profound in the wake of the recent crypto crash that saw some crypto investment firms go bankrupt, leading to investors losing billions.

How SEC Determines Securities

For some time now, there have been complaints about how the SEC determines which tokens are securities and which are not – especially within the expanding digital world with thousands of digital assets or cryptos in the market. The regulator relies on a historical US supreme court verdict made way back in 1946 that spells out a framework for a legal test to be used by SEC to determine securities. If an asset falls under this scale, it’s considered security and under SEC’s jurisdiction.

However, the SEC has been reluctant to provide a list of crypto tokens it deems as securities. Also, the anticipated case against Coinbase isn’t the first that SEC has filed against a big crypto entity. SEC is already embroiled in a fierce court battle with Ripple, the creator of XRP. The regulator claims XRP is a security. Ripple disagrees with that. 

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Ammara Mubin is a cryptocurrency reporter and trader with vast experience in the industry. Mubin has written several news stories related to the crypto industry, including non-fungible tokens (NFTs), decentralized finance (DeFi), fundraising, mining, etc. Her major focus is covering regulatory events that are capable of shaping the entire crypto ecosystem.

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