SEC alleges Coinbase, Binance for illegal exchange operations, securities

The United States Securities and Exchange Commission, or SEC, has filed lawsuits against cryptocurrency exchanges Coinbase and Binance. It accuses them of operating unregistered exchanges and selling unregistered securities.

The SEC’s lawsuit against Binance alleges that the company engaged in misconduct. This includes activities such as internal wash trading and self-dealing. These actions boosted trading volumes, indicating a preference for outward appearances rather than upholding ethical business practices.

The SEC raises concerns about the autonomy of Binance.US about its parent company, Binance International. The agency implies that the latter influences its U.S. counterpart. The SEC intends to expand its regulatory jurisdiction to encompass the broader Binance International organization.

The SEC also designates several products available on the U.S. platform as securities. It includes Binance’s BNB token, Binance USD (BUSD), BNB Vault and Simple Earn programs.

Cointelegraph said that the SEC’s focus on these products highlights concerns about the potential mixing and diversion of customer funds. Based on these allegations, the SEC’s actions against Binance show that the company may have disregarded regulations and mishandled customer funds.

SEC targets Coinbase

Unlike Binance, Coinbase has demonstrated compliance with regulations, even becoming a regulated U.S. exchange that went public. However, the SEC’s lawsuit alleges that Coinbase operates as an unregistered exchange, broker and clearing agency.

The SEC asserts that certain tokens and staking programs offered by Coinbase are unregistered securities. The SEC also claims that Coinbase’s noncustodial digital wallet can be considered as providing brokerage services.

Cointelegraph wrote that the SEC’s determination to classify certain tokens as securities imply a shifting perspective encompassing all cryptocurrencies except Bitcoin and Ether.

Despite the regulatory battle faced by both Binance and Coinbase initiated by the SEC three weeks ago, the shares of the US-based cryptocurrency exchange have demonstrated strong performance.

On June 6, when the SEC filed the lawsuit, COIN shares were valued at around $50. However, they have since risen to $70, reflecting a noteworthy increase of 37 percent.

According to Cointelegraph, the SEC’s lawsuits targeting Coinbase and Binance have sparked concerns about the SEC’s intentions and the potential implications for the crypto industry.

Some observers believe that the SEC’s chances of succeeding in the case against Coinbase are slim. This belief is rooted in SEC Chair Gary Gensler’s public admission that the agency lacks the congressional authority to regulate cryptocurrency exchanges.

In a recent Wall Street Journal interview, Coinbase’s CEO, Brian Armstrong, said he anticipated a favorable outcome for Coinbase. He argued that the SEC’s actions lack fairness. He also cited Coinbase’s diligent pursuit of regulatory clarity.

“This is not a good fact pattern for them [the SEC] that a jury or a judge would look at [and] say, ‘Look, this company was petitioning you for clarity,” he said.

Armstrong added that the SEC failed to provide feedback before initiating enforcement action. He argued that such conduct is unjust and “that’s not good for America.”

The resolution of this legal dispute may stretch out over several years. Cointelegraph believed it would be optimal if Congress could establish unambiguous legislation for digital asset markets.

Representatives Patrick McHenry and Glenn Thompson proposed a digital asset market structure plan in a recent noteworthy development. This proposal aims to clarify regulations, promote innovation, and safeguard consumers. This advancement has the potential to impact the landscape.

According to Cointelegraph, the SEC’s actions can drive crypto companies away from the U.S. It can also erode domestic consumer confidence in the cryptocurrency market. As a result, other jurisdictions like Hong Kong, Dubai, Singapore and the United Kingdom may seize the opportunity to attract crypto innovation and capital.

In the immediate future, there could be a decline in crypto stocks, altcoins and U.S.-based crypto startups. Investors might opt to divest their holdings in favor of Bitcoin or stablecoins.