The Securities and Exchange Commission’s crypto crackdown continued Tuesday, with the financial regulator bringing new charges against another major cryptocurrency exchange, Coinbase.
. In doing so, the SEC said in a statement that Coinbase has “deprived investors of significant protections,” including SEC inspection, record keeping requirements, and other safeguards.
One of those safeguards has to do with the SEC’s allegation that Coinbase has been functioning simultaneously as an exchange, broker, and clearing agency — three key functions “typically separated in traditional securities markets,” according to the complaint. A main reason for that separation, the SEC noted, is to “protect investors and their assets from the conflicts of interest that can arise when these functions merge.
“We allege that Coinbase, despite being subject to the securities laws, commingled and unlawfully offered exchange, broker-dealer, and clearinghouse functions,” SEC Chair Gary Gensler said. “In other parts of our securities markets, these functions are separate. 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.
Paul Grewal, Chief Legal Officer and General Counsel for Coinbase, responded to the charges: “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. The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation.
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