Coinbase Faces Simultaneous State Security Regulator Action Amid SEC Lawsuit


SEC Files Lawsuit Against Cryptocurrency Exchange for Alleged Unregistered Securities Offerings

In a statement released on June 6, the Alabama Securities Commission revealed that a multistate task force consisting of regulators from Alabama, California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin has issued a Show Cause Order against cryptocurrency exchange Coinbase.

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The order specifically accuses Coinbase of violating securities laws by providing its staking rewards program accounts to residents of Alabama without the necessary registration to offer or sell these securities.

The Show Cause Order issued to Coinbase grants the company a 28-day period to present reasons why it should not be compelled to cease and desist from selling unregistered securities in Alabama. Coincidentally, on the same day, Coinbase was served with a lawsuit notice from the United States Securities and Exchange Commission (SEC) regarding the alleged offering of unregistered securities.

According to regulators, Coinbase receives a portion of the staking profits before distributing them to investors. It is important to note that the action taken by the Alabama Securities Commission does not prohibit Coinbase from providing staking services as long as the company adheres to the laws of Alabama.

In addition, the Alabama Securities Commission (ASC) highlighted that Coinbase’s approximately 3.5 million staking rewards program accounts across the country are not covered by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC).

This lack of coverage, according to regulators, means that there is no safeguard against potential losses for any of these accounts, including the over 33,000 accounts currently held by investors in Alabama.

“ASC encourages investors to reach out to them to verify the registration status of a staking rewards program prior to making any investment decisions.”

Also Read This Related: Coinbase, Robinhood, CFTC to Testify in Congress on Proposed Crypto Bill

At the same time, the lawsuit filed by the SEC against Coinbase claims that the exchange failed to register as a broker, national securities exchange, or clearing agency, consequently circumventing the disclosure requirements mandated for securities markets.

Regarding the recent lawsuit against Coinbase, SEC Chair Gary Gensler expressed that the crypto exchange allegedly denied its customers crucial safeguards that protect against fraud and manipulation.

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Additionally, Kraken, another cryptocurrency exchange, previously reached a settlement of $30 million with the SEC in relation to its U.S. crypto staking program. Notably, the SEC has an ongoing lawsuit against cryptocurrency exchange Binance as well.

Important: This article is intended solely for informational purposes. It should not be considered or relied upon as legal, tax, investment, financial, or any other form of advice.

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  • Asad

    Asad is a dynamic and talented cryptocurrency content author who brings a wealth of knowledge and enthusiasm to every article. With a deep understanding of blockchain technology and a passion for digital assets, Asad's writing is both informative and engaging.

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