In further blows to the cryptocurrency sector, two of its main players were sued this week by the Securities and Exchange Commission: on Monday, the agency filed charges against Binancethe world's largest exchange, and the next day accused Coinbase, the only publicly traded exchange in the United States, of violate securities laws.
SEC Chairman Gary Gensler has long insisted that most crypto tokens are securities and therefore fall under the agency's jurisdiction. Many digital asset enthusiasts, including some regulators and lawmakers, say Gensler is overreaching.
There are remarkable similarities between the cases this week. The SEC accuses both Binance and Coinbase of operating stock exchanges and selling digital assets that it says should have been registered. But in its lawsuit against Binance, the SEC also accuses its CEO, Changpeng Zhao, of civil fraud, while its case against Coinbase does not allege fraud or name the company's CEO, Brian Armstrong, as a defendant.
Here's what we know so far about the SEC's crackdown on crypto activities.
The SEC accuses Coinbase of operating as an unregistered broker.
The SEC said Coinbase made billions of dollars by facilitating the sale of crypto assets as an unregistered exchange and deprived investors of significant protections. The agency has argued that most crypto products are no different from stocks, bonds and other securities, and that companies offering them must register with the agency and make appropriate disclosures, just like any stock exchange or traditional brokerage.
Coinbase and the SEC have been in a long public battle over the agency's stance on digital assets. Last year, Coinbase petitioned the SEC for new rules, and in April sued the agency for failing to act on that request.
The company has been lobbying Congress and calling for legislation. Coinbase Legal Director Paul Grewal testified before the House Agriculture Committee Tuesday about a bill released last week that he said would make the rules "clear in practice, not just in theory." ". Mr Grewal added: "The solution is legislation, not litigation."
Binance is under fire for around a dozen securities charges.
Binance is accused of funneling billions of dollars of client money to a company separately owned by Mr. Zhao. The SEC charged Mr. Zhao, as well as the company, and charged Binance with around a dozen other violations, including misleading investors about the adequacy of its systems to detect and control manipulative trading.
In addition to those charges, Binance, like Coinbase, is accused of operating an unregulated exchange and issuing cryptocurrencies that the agency says should have been registered as securities. Among them was his own token, which trades as BNB, as well as around 10 other popular tiles. Binance denies the charges. On Tuesday, the SEC petitioned a federal court for a temporary injunction Freezing Binance's US Assets.
The Commodity Futures Trading Commission also accused Binance of violating commodity laws in March.
What about FTX?
The allegations of mismanagement of client funds against Binance are somewhat reminiscent of charges filed late last year against cryptocurrency exchange FTX and its founder, Sam Bankman-Fried. But Mr. Bankman-Fried, unlike Mr. Zhao, faces criminal charges of fraud and conspiracy, as well as campaign finance law violations.
Prosecutors said that Mr. Bankman-Fried had diverted billions of dollars in funds from FTX clients to his trading company, Alameda Ventures, and that Alameda had used the embezzled funds for highly-leveraged, risky bets.
What happens next?
Binance said the SEC was trying to "unilaterally define the structure of the crypto market" with Enforcement Actions Grabbing Headlines and vowed to "defend our platform vigorously," the company wrote in a post on its website Monday.
Coinbase has similarly said that it intends to fight back and will continue to push Congress for new legislation. The companies hope the crypto legislation will help remove the stain from recent scandals and legitimize the industry, which has a reputation for lawlessness.
But not all lawmakers share that sense of urgency, and regulation can be slow. Enforcement actions could develop before any bill is passed, leaving hotly contested questions for the federal courts.
From an industry perspective, that indirect route may end up working. The Supreme Court has shown its willingness to limit the power of the agency, and crypto lobbyists are well aware of the implications. In the next term, the justices will reconsider a doctrine that currently requires courts to refer to agency experience, which may further limit administrative authority.
โWe are seeing the potential erosion of one of the main tenets of our jurisprudence and a potential shift in the scope of authority for administrative agencies,โ said Sheila Warren, executive director of the Crypto Council for Innovation, a Washington lobby group that represents Coinbase. and others. She added: "It's going to be wild."
