SEC claims that Coinbase was aware of the violations of the law

Coinbase was sued by the U.S. Securities and Exchange Commission (SEC) for misconduct for not registering its company as an exchange, broker, and clearing agent on June 6, 2023.

According to the complaint, the SEC claims that 13 crypto assets, including Solana and Cardano’s tokens, that were distributed to its customers on Coinbase’s platform, are classified as crypto assets. Furthermore, the SEC claimed that Coinbase’s staking program clearly classifies as a financial contract as it is a way to earn returns from the managerial efforts of Coinbase.

Coinbase’s CEO and co-founder Brian Armstrong took to Twitter to share the distressing news that the SEC’s rules and guidelines regarding crypto exchanges were made unclear to them from the start. 

Today, the SEC claims that Coinbase was well aware of the violation of laws. 

The US Securities and Exchange Commission claims that Coinbase informed its investors about the risk of SEC intervention in the business and the probability that their operations would come under federal law. 

The SEC filed a response to CEO and cofounder Brian’s response about the lack of clarity of laws on digital assets. 

According to the letter, the SEC claims that before Coinbase could go public, they used legal factors set by the Supreme Court to identify if trading digital assets on its platform was classified as a securities transaction. The SEC further alleges that Coinbase advised its users not to use problematic statements that would cause the SEC to intervene and also informed its investors that their operations might be violating the federal security laws. 

“These activities claim that Coinbase was aware of breaking federal laws” states the regulator’s response. 

The SEC accuses Coinbase of not following the rules established by the Supreme Court that have been in place for a long time. Instead, Coinbase relied on its own legal team to create its own criteria for determining what qualifies as an investment contract.

On June 28, the exchange made their intention known to the court about filing a motion of judgment regarding the case as per reports.

A motion of judgment is filed if the defendant claims that there is no real dispute regarding a court proceeding. 

According to the letter, Coinbase stated that the SEC reviewed their activities for months before the approval was given to operate the exchange publicly. 

Furthermore, the SEC chairperson at that time clearly stated that there were no regulations for the cryptocurrency Exchange currently and that if action is needed, regulatory measures need to come directly from Congress. Since then, Coinbase has followed the required compliance with diligence, and two years after the successful business of Coinbase, the SEC has sued the company for misconduct.

Coinbase argues further that this case falls outside of the SEC’s authorities and violates due process and constitutes an abuse of discretion. Coinbase also states that the SEC only has the authority to pursue this enforcement if the digital asset transactions are considered investment contracts under the Securities Exchange Act of 1933 and 1934. 

The SEC rejected this motion as they believe that an “investment contract” occurs when a transaction, scheme, or contract” contains economic characteristics. 

According to Cointelegraph, corporate and securities lawyer, Roland Chase explained that the SEC is only allowed to review public documents and provide comments and question the company’s improvement of disclosure to the investors. Roland also explains that the SEC has no right to stop Coinbase from continuing as a public listing merely because they think it’s a bad idea to invest in such a company. 

On June 6th, the SEC charged Coinbase for the distribution of non-registered securities since 2019 for which a pre-motion conference has been scheduled on July 13th at 2 pm. 

Disclaimer: This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.

Author: Puskar Pande

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