If the latest lawsuits stand in court, the exchanges will have to become compliant under the SEC’s regulatory rules - and if not, they could shut down in the US. While many of those cases are still pending, the SEC’s track record so far has been extremely strong. “The SEC has brought close to 150 cases in the area of crypto,” says Stark. In Stark’s view, chances are good that the SEC will prevail. In a lengthy statement, Binance denied the SEC’s allegations and claimed that its litigation would “undermine America’s role as a global hub for financial innovation and leadership.” Coinbase CEO Brian Armstrong tweeted similarly that the approach of regulating crypto through enforcement was “harming America.” In a statement to Vox’s Sara Morrison, Coinbase’s chief legal officer and general counsel Paul Grewal bemoaned what he called the SEC’s “enforcement-only approach” and called for clarity in the agency’s rules. “I think anyone who has crypto on any exchange should take it off of that exchange immediately. “It’s a very scary situation for any customer,” says John Reed Stark, a former SEC enforcement attorney. So, whether you have $20 or $200,000 in assets on a crypto exchange, should you be worried? The latest legal action represents an existential threat to the entire industry. Are they being used as digital money, or is crypto - whether it’s ethereum, tether, or cardano - like a share of a company where investors are speculating on making a profit as “share” prices go up? That project is now on pause.)Īt their core, the SEC’s lawsuits against the two companies are the most decisive actions to date in the prolonged battle to settle what cryptocurrencies and crypto exchanges even are. (Disclosure: This August, Bankman-Fried’s philanthropic family foundation, Building a Stronger Future, awarded Vox’s Future Perfect a grant for a 2023 reporting project. It’s no longer calling out a few rotten apples it’s saying the whole enterprise needs to be scrutinized under a regulatory lens.
That the agency is going after such behemoths - after bringing cases against the most egregious bad actors, such as Sam Bankman-Fried, as well as celebrity crypto endorsers like Kim Kardashian (who paid a $1.26 million fine), Lindsay Lohan, and Jake Paul - sends a clear message. Binance has about 90 million users, according to CoinMarketCap, while Coinbase reported that it had 110 million verified users as of 2022. Binance faces the same charge, as well as additional accusations that it appropriated billions of dollars in customers’ funds for its CEO’s trading firm, misled its customers, lied to regulators, and more. The SEC’s main allegation against Coinbase is that it’s running an unregistered securities exchange - like if the Nasdaq independently operated without any regulatory oversight. This week, the US Securities and Exchange Commission (SEC), a federal agency that regulates securities and protects investors, filed lawsuits against Binance and Coinbase, two of the world’s biggest crypto exchanges, on which investors buy and trade a large offering of cryptocurrencies. That freewheeling era now appears to be coming to an end. Unlike registered securities - as in, stocks - cryptocurrencies and crypto exchanges didn’t have to disclose much of anything to customers, and the list of lies and frauds rocking the industry has continued to pile up. For a long time, the crypto industry has been a Wild West with few regulations and laws governing it - a fact that many crypto enthusiasts saw as a feature, not a bug.
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