On June 6, the Alabama Securities Commission released a statement announcing that a multistate task force, consisting of regulators from Alabama, California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington and Wisconsin, had issued a Show Cause Order against cryptocurrency exchange Coinbase. The order claims that Coinbase is in breach of securities law by providing its staking rewards program to Alabama residents without the necessary registration to offer or sell these securities.
The Alabama regulator has given Coinbase a period of 28 days to explain why they should not be ordered to stop offering unregistered securities. On the same day, Coinbase was served with a lawsuit notification from the United States Securities and Exchange Commission concerning the offering of unregistered securities. According to the regulators:
The ASC further stated that Coinbase’s 3.5 million staking rewards program accounts across the country are not covered by the FDIC or SIPC. Consequently, regulators pointed out that there is no protection from loss for any of these accounts, including the 33,000 accounts held by Alabama investors.
Simultaneously, the SEC accused Coinbase of not registering as a broker, national securities exchange, or clearing agency, thus avoiding the disclosure requirements for securities markets. In response to the recent Coinbase lawsuit, SEC Chair Gary Gensler declared that the crypto exchange had allegedly deprived its customers of essential safeguards that avert fraud and manipulation. Another crypto exchange, Kraken, had already settled with the SEC for $30 million in regards to its U.S. crypto staking program. Another SEC lawsuit against cryptocurrency exchange Binance is also still in progress.
Does SEC Chair Gary Gensler have the ultimate authority when it comes to crypto regulation?
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