The cloud over crypto exchange Coinbase appears to become darker and darker.
The ongoing saga around the cryptocurrency exchange Coinbase continues to grow more complex as the Alabama Securities Commission (ASC) joins forces with several state regulators in issuing a Show Cause Order against the company.
It is worth noting that regulators from Illinois, Vermont, South Carolina, California, Washington, Maryland, Wisconsin, Kentucky, and New Jersey are joining Alabama in this investigation.
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A statement released by the ASC on June 6th elucidates that Coinbase may have violated securities laws by extending its staking rewards program to Alabamians without registering the securities for trade.
Delving deeper into the matter, the Show Cause Order provides Coinbase with a 28-day window to justify why it should not be stopped from offering unregistered securities in Alabama.
The order coincides with a lawsuit notice Coinbase received from the US Securities and Exchange Commission (SEC) regarding similar allegations.
In the unfolding drama surrounding Coinbase's legal woes, SEC Chair Gary Gensler voiced his concerns over Coinbase's alleged failure to provide its customers with the essential safeguards to combat fraud and manipulation.
The context is further enriched by a previous settlement worth $30 million between the SEC and another cryptocurrency exchange, Kraken, over its US crypto staking program. Additionally, the SEC started legal proceedings against another cryptocurrency exchange, Binance.
From the regulators' perspective, there is an inherent imbalance with how Coinbase profits from staking before distributing earnings to investors. ASC, however, does not intend to halt Coinbase's staking services, provided the platform aligns with Alabama's legal stipulations.
In expanding on this argument, the ASC draws attention to the fact that around 3.5 million staking rewards program accounts on Coinbase are bereft of insurance coverage from the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC).
The implication of this lack of insurance, regulators maintain, is the potential for substantial losses for all accounts, including the 33,000-plus held by investors in Alabama.
Investors are encouraged to contact ASC to confirm the registration status of a staking rewards program before investing their money.
The combined scrutiny from the state regulators and SEC sends a stark message about the urgency of regulatory compliance in the fast-evolving world of cryptocurrency trading. As the complexities of these legal battles unravel, the players involved in this space will undoubtedly be watching closely.
