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SEC sues crypto exchanges

SEC, crypto exchanges, crypto, assets, US, market regulator, legal action, crypto, bitcoinThe divisive issue of defining crypto assets has reached a new peak in the US after its capital markets regulator launched legal action against two of the world’s leading crypto exchanges.

The Securities and Exchanges Commission (SEC) is suing both Coinbase and Binance.

Binance, considered to be the world’s largest crypto trading venue, and its founder Changpeng Zhao have been accused by the SEC of engaging in an “extensive web of deception”.

Central to the case is the accusation that Binance mixed billions of dollars of client’s money with a separate trading firm owned by Zhao called Sigma Chain.

"As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied,” stated the SEC chair Gary Gensler.

Binance has refuted the 13 charges and accused the SEC of failing to engage with it and other players in the crypto market.

"Unfortunately the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry".

Meanwhile the SEC has sued Coinbase for operating its platform as an unregistered national securities exchange, broker and clearing agency.

The regulator alleges that since 2019, Coinbase has “made billions of dollars unlawfully” through buying and selling crypto assets on its platform without registering as either a broker, exchange or clearing agency, as required by law.

Consequently, this failure to register has left investors without significant protections, according to a scathing statement from the SEC.

"You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: the consequences for the investing public are far too great,” says Gurbir S. Grewal, director of the SEC’s Division of Enforcement. "As alleged in our complaint, Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them.”

The SEC’s legal action comes weeks after it was sued by Coinbase in a bid to force the regulator to engage with crypto firms about creating a regulatory framework specifically for digital and crypto assets.

At the heart of the conflict between the SEC and other crypto firms is a question of definition. The SEC has continually stated that the assets traded by the likes of Coinbase and Binance should be defined as securities and therefore subject to the same rules, including the requirement to register, as traditional asset classes.

In contrast, Coinbase has argued that the SEC is turning to litigation and enforcement instead of engaging with crypto players to develop new rules.

“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,” said Paul Grewal, Coinbase general counsel back in March.

“The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation.”

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