Breaking: Coinbase targeted by state security regulators concurrent to SEC lawsuit

According to a statement published by the Alabama Securities Commission on June 6, a multistate task force comprising state regulators from Alabama, California, Illinois, Kentucky, Maryland, New Jersey, South Caroline, Vermont, Washington and Wisconsin have issued a Show Cause Order against cryptocurrency exchange Coinbase. The order alleges that “Coinbase violates the securities law by offering its staking rewards program accounts to Alabama residents without a registration to offer or sell these securities.”

In particular, the order gives Coinbase 28 days to show cause why they should not be directed to cease and desist from selling unregistered securities in Alabama. The same day, Coinbase received a lawsuit notice from the United States Securities and Exchange Commission alleging the offering of unregistered securities. According to regulators: 

“Coinbase takes a cut of those [staking] profits before sharing them with investors. The ASC [Alabama Securities Commission] action does not prohibit Coinbase from offering staking as a service, so long as it complies with Alabama’s laws.”

Furthermore, the ASC said that Coinbase’s nearly 3.5 million staking rewards program accounts nationwide “are not insured by the Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC).” As a result, regulators claim that there is “no protection from loss for any of these accounts, including the more than 33,000 accounts currently held by Alabama investors.”

“Investors are encouraged to contact ASC to confirm the registration status of a staking rewards program before investing their money.”

Simultaneously, the SEC lawsuit against Coinbase alleged that the latter never registered as a broker, national securities exchange or clearing agency, thereby evading the disclosure scheme for securities markets. Addressing the latest Coinbase lawsuit, SEC Chair Gary Gensler said the crypto exchange allegedly deprived its customers of critical protections that prevent fraud and manipulation. Another cryptocurrency exchange, Kraken, previously settled with the SEC for $30 million regarding its U.S. crypto staking program. Another SEC lawsuit against cryptocurrency exchange Binance is also ongoing. 

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