The U.S. Securities and Exchange Commission (SEC) has filed two major lawsuits and an application for a temporary restraining order against Binance and Coinbase, respectively the world’s and the U.S.’s largest crypto exchanges. These may well be the cases that define how cryptocurrencies are regulated in the U.S., at least until Congress passes some legislation.
The Coinbase case is largely vanilla, with the main allegation being that the company listed securities and didn’t register as a broker, exchange or clearinghouse. Coinbase CEO Brian Armstrong has been making the TV and conference circuit, saying Coinbase does not plan to shut down its staking service, which is also facing heat from 10 state regulators. Armstrong also said Coinbase tried to “come in and register,” as SEC Chair Gary Gensler has often said, but “there is no path” to do so.
Binance, for its part, is taking a similarly combative position, arguing in public statements that it had been cooperating with the SEC’s investigation and tried to work toward a “negotiated settlement.” The Binance case includes a number of allegations that Binance and CEO Changpeng Zhao secretly had access to Binance.US’s customer funds and diverted these funds to Zhao’s own entities. Binance now has a June 12 deadline to respond to the SEC’s motion for a temporary restraining order, with a hearing scheduled for June 13.
Both Coinbase and Binance have issued a number of statements and had their respective executives weigh in on both TV and Twitter about the allegations. There are some clear differences so far: Coinbase CEO Brian Armstrong is making the TV and conference circuit, saying Coinbase does not plan to shut down its staking service (which is also facing heat from 10 state regulators) while Binance.US announced Wednesday it would halt trading on over 50 different token pairs, most of which were traded against the tether (USDT) stablecoin.
One argument Coinbase has made since receiving its Wells Notice earlier this year is that the fact it’s gone public under the SEC’s auspices. “The SEC reviewed our business and allowed us to become a public company in 2021,” Armstrong said in a tweet this week. That’s a misleading claim, said Alexandra Damsker, a one-time SEC attorney who’s now an adviser to INX. A reviewer with the Division of Corporation Finance is not tasked with determining whether something is legal or illegal, she said, though they can alert the Division of Enforcement or another enforcement officer if they find something questionable.
The Division of Corporation Finance would just continue its own review, which consists of looking for material misstatements or omissions and ensuring that the SEC’s rules are met, she said. Armstrong also said Coinbase tried to “come in and register,” as SEC Chair Gary Gensler has often said, but “there is no path” to do so, a complaint echoed this week by Robinhood’s compliance chief Dan Gallagher in front of Congress (and it’s worth noting Robinhood received a subpoena tied to its crypto activities).
Both Coinbase and Binance also reiterated their complaints about regulation by enforcement rather than guidance, though, arguably the SEC did provide some notice that it believed some (specific) cryptocurrencies are unregistered securities. To some extent, this comes down to the fundamental question at the heart of this complaint: are cryptocurrencies – at least the ones listed in the Coinbase and Binance complaints – securities? The SEC obviously thinks the answer is yes, and so Coinbase’s efforts to get the agency to say something else may just well be moot.
Binance itself has said multiple times that customer funds have never been at risk, and that it disagrees with the SEC’s assessment. Binance.US has said that the SEC hadn’t previously expressed concern about customer funds and that its attorneys have already spoken with the agency about these issues. Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry.
The Binance and Coinbase cases do share some major differences. While Coinbase is facing a largely vanilla case where the main allegation is “you listed securities and didn’t register as a broker, exchange or clearinghouse,” the Binance case includes a number of allegations that Binance and CEO Changpeng Zhao secretly had access to Binance.US’s customer funds and diverted these funds to Zhao’s own entities. In various tweets, Binance.US has said that the SEC hadn’t previously expressed concern about customer funds and that its attorneys have already spoken with the agency about these issues.
The SEC filed a lawsuit against Binance, alleging that the exchange had offered and sold securities without registering them, and that it had failed to provide investors with the necessary disclosures. The SEC also accused Binance of misleading investors about its operations and financial condition. The SEC’s complaint seeks permanent injunctions, disgorgement of ill-gotten gains, and civil penalties.
Meanwhile, the SEC has also filed an application for a temporary restraining order against Coinbase, alleging that the company had offered and sold securities without registering them, and that it had failed to provide investors with the necessary disclosures. The SEC’s complaint seeks permanent injunctions, disgorgement of ill-gotten gains, and civil penalties.
The Coinbase lawsuit is largely vanilla, with the main allegation being that the company listed securities and didn’t register as a broker, exchange or clearinghouse. Coinbase CEO Brian Armstrong has been making the TV and conference circuit, saying Coinbase does not plan to shut down its staking service, which is also facing heat from 10 state regulators. Armstrong also said Coinbase tried to “come in and register,” as SEC Chair Gary Gensler has often said, but “there is no path” to do so.
Binance is taking a similarly combative position, arguing in public statements that it had been cooperating with the SEC’s investigation and tried to work toward a “negotiated settlement.” The Binance case includes a number of allegations that Binance and CEO Changpeng Zhao secretly had access to Binance.US’s customer funds and diverted these funds to Zhao’s own entities. Binance now has a June 12 deadline to respond to the SEC’s motion for a temporary restraining order, with a hearing scheduled for June 13.
These lawsuits may well be the cases that define how cryptocurrencies are regulated in the U.S., at least until Congress passes some legislation. The question is how Coinbase and Binance will defend themselves. Both companies have issued a number of statements and had their respective executives weigh in on both TV and Twitter about the allegations. There are some clear differences so far: Coinbase CEO Brian Armstrong is making the TV and conference circuit, saying Coinbase does not plan to shut down its staking service while Binance.US announced Wednesday it would halt trading on over 50 different token pairs, most of which were traded against the tether (USDT) stablecoin.
