Seven bombshells from the SEC’s Coinbase suit

On June 6, the U.S. Securities and Exchange Commission (SEC) filed charges against Coinbase, alleging that the company violated securities regulations.

These are the most notable takeaways from those charges.

1. Coinbase operated as an unregistered broker

The SEC said that Coinbase’s main trading platform has operated as an unregistered broker, exchange, and clearing agency since 2019. It also said that the company’s Prime and Wallet services have operated as unregistered brokers since then.

Coinbase’s profits are also raised in the case. The SEC said that Coinbase has earned billions of dollars worth of revenue from transaction fees and alleged that Coinbase prioritized its own revenue over investor interest and legal compliance.

2. Case text primarily concerns third-party listings

The SEC said that Coinbase provided access to existing crypto asset securities. It said that this brings Coinbase “squarely within the purview of the securities laws.”

Those tokens are Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), The Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), FLOW (FLOW), Internet Computer Protocol (ICP), Near Protocol (NEAR), Voyager (VGX), Dash (DASH), and Nexo (NEXO).

Over 40 pages of the 101-page filing aim to prove that those tokens are securities. Those pages make little mention of Coinbase apart from the fact that it listed the above tokens, meaning that Coinbase’s conduct is not solely at play in the case.

3. Staking services are a security offering

The SEC said that Coinbase’s staking service constitutes an unregistered securities sale and offering in its own right. Coinbase marketed its staking service as an investment opportunity, profited from the service, gave users expectations of profits, and otherwise met the conditions needed for the offering to be considered a security.

Coinbase began to expect that the SEC would target its staking offering in early 2023 and changed its staking model in March. The SEC acknowledged that change by quoting a relevant filing, but did not otherwise provide comment.