The US Securities and Exchange Commission on Tuesday sued Coinbase, the largest US crypto asset trading platform, accusing it of illegally operating without having first registered with the regulator.
The SEC is alleging that Coinbase evaded regulations by letting users trade numerous crypto tokens that were actually unregistered securities.
Coinbase's failure to register deprived investors of protections, inspections record-keeping requirements and more, the SEC said in a complaint filed in Manhattan federal court.
“While Coinbase's calculated decisions may have allowed it to earn billions, it's done so at the expense of investors by depriving them of the protections to which they are entitled,” said Gurbir Grewal, director of the SEC's enforcement division.
Shares of Coinbase Global Inc, also named in the filing, fell more than 18 per cent when markets opened.
The complaint alleges that Coinbase has made billions of dollars since 2019 unlawfully facilitating the exchange of crpyto asset securities. Coinbase is accused of breaking the agency’s rules with its “staking” service, which lets customers turn over their crypto tokens to enable transactions on a blockchain that then pays a return to the customer.
“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,” Mr Grewal said.
A representative for Coinbase did not immediately reply to a Bloomberg request for comment.
In a separate move, the Alabama Securities Commission issued a show-cause order to Coinbase, giving it 28 days to explain why it should not be forced to cease and desist from selling unregistered securities in the southern US state.
Alabama said Tuesday's action was a result of an investigation that was joined by nine other state securities regulators.
Tuesday's actions come a day after the SEC sued Binance, the world's largest cryptocurrency exchange, and its founder Changpeng Zhao.
Bitcoin was recently trading down more than 4 per cent, at $25,589.