US securities watchdog has apparently declared Doge-war on Binance and now Coinbase
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Rob The Badman Badman is going to be mad and bad at me for this one, but it I just do the reporting on the reporting.
And the reporting from the US certainly makes it seem to me that the US securities watchdog is actually putting it’s bite near its bark – since the congressional side of things isn’t – and decided to declare Doge-war on the heart of American corrupto-currency. (Alright, that last bit was me).
In short – overnight the US Securities and Exchange Commission’s reportedly gone and sued the hell out of the very popular crypto exchange Coinbase.
🥳🎂Happy 90th birthday to the Securities Act of 1933 – the first of the securities laws.
90 years later, I am proud that we @SECGov are committed to investors and issuers alike and ensuring that the markets connecting them works for them.
— Gary Gensler (@GaryGensler) May 27, 2023
Whoops! Wrong tweet, sorry Gary, readers, Badman…
Happy Birthday to @SECGov! The SEC officially is 89 years old, thanks to the Securities Exchange Act of 1934.
What is the Exchange Act? Let’s break it down🧵⬇️ pic.twitter.com/zPsrxtjVnn
— Gary Gensler (@GaryGensler) June 6, 2023
OMG. Sorry! I did it again…
Ah. Here we go…
Coinbase’s alleged failures deprive investors of critical protections, including rulebooks that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC. https://t.co/FwpdmENvoL
— Gary Gensler (@GaryGensler) June 6, 2023
The Commish is alleging Coinbase violated the hell out of all sorts of securities law, in what appear to be genuine strides in its as yet timid pursuit of shonky behaviour in the US digital assets universe.
The SEC also said Coinbase operated as an unregistered broker through Coinbase Prime, which acts as a kind of roadcop directing orders to Coinbase’s platform and other platforms, and Coinbase Wallet, which sneakily lets investors ‘access liquidity outside Coinbase’s platform’.
The US regulator said on Wednesday morning Sydenham time that the Californian (San Franciscan-based) Coinbase actually fell down at the very first hurdle of its life as a viable asset exchange.
Coinbase has “never (ever, again my word) “registered” with the regulator as “a broker, national securities exchange or clearing agency.”
Tut-tut. And there was so much choice too.
Coinbase moreover allegedly (but probably: me) offered customers (victims: what am I like?!) stuff like unregistered securities (umm crypto?), the SEC added.
It is perhaps to the surprise of no person that stock in Coinbase was teetering at minus 16% in pre-market business on the Nasdaq as the news broke.
On Monday in the states, the suddenly very bitey SEC accused Binance Holdings and its Chinese-American CEO (Zhao Changpéng 赵长鹏 ) of “mishandling” (spending) customer (patsy) funds, misleading (tricking) investors (marks) and regulators (obstacles), and breaking securities rules (breaking securities rules).”
The SEC’s fabulously wide-ranging, incredibly detailed suite of allegations against Zhao and Binance, basically add up to the watchdog complaining that all up, the world’s largest crypto exchange (now the other one’s in actual jail) probably violated a full baker’s dozen of securities laws – largely around the seemingly blatantly obvious move of churning up billions of US dollars of customer moula with a separate, arms-length holding company.
Or perhaps it’s even just a subsidiary. Whatever it is from my POV it looks like an absolutely lame and amateur-week attempt at a US company nearby your company, but also one which is still wholly owned by you (Zhao).
So, not having committed much fraud and or larceny myself (yet), if it’s true, Changpeng Zhao must actually be a bit of a goose.
In an epic 136-page very whiney complaint (filed Monday in the US federal court in Washington), the SEC laid out in Times New Roman saying for years, they flouted basic know-your-customer rules by letting Americans improperly open accounts and trade and do dumb stuff.
“We allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law,” SEC Chairman Gary Gensler said (a little haughtily) in a statement.
“The public should beware of investing any of their hard-earned assets with or on these unlawful platforms.”
The regulator asked that the court to freeze the hell out of Binance assets and get a receiver on board.
That’s a sign the watchdog people reckons Binance has already company property may be lost or concealed.
Binance called the complaint “disappointing,” saying it had engaged with the SEC in good-faith negotiations to settle the matter.
The exchange also said that the SEC was “misguided” in not providing clarity over rules for digital assets.
“The SEC’s reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance,” chimed in Paul Grewal, Coinbase’s lawyer.
“Coinbase’s alleged failures deprive investors of critical protections, including rule books that prevent fraud and manipulation, proper disclosure, safeguards against conflicts of interest, and routine inspection by the SEC,” again, the words of Gary Gensler,
Apparently this has been going on since – wait for it – 2019.
Coinbase’s failure to register the SEC reckons: “has deprived investors of significant protections, including inspection by the SEC, record-keeping requirements, and safeguards against conflicts of interest, among others.”
“Since at least 2019, Coinbase has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities.”
Pre-Putin. Pre-pandemic. Prehistoric.
There’s going to be a hell of a lot of angry Coinbase users – circa 110 million of them with a hell of a lot of assets – circa US$80 billion to try and haul back if it goes south.
For four years then, Coinbase has operated as an unregistered broker through its exchange platform, its prime brokerage and also its crypto wallet thingy, which very nicely takes customers’ funds and puts them in that on their behalf.
“Coinbase has carried out these functions despite the fact that the crypto assets it has made available for trading on the Coinbase Platform, Prime, and Wallet have included crypto asset securities, thus bringing Coinbase’s operations squarely within the purview of the securities laws,” the SEC said.
It might not be the crime of the century, but it’s really easy to make it look like one.