Coinbase Receives Show Cause Notice from Ten US States

The SEC is suing the cryptocurrency exchange for alleged unregistered securities offerings.

On June 6, the Alabama Securities Commission released a statement revealing that a multistate task force, comprised of regulators from Alabama, California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin, has issued a Show Cause Order against Coinbase, a prominent cryptocurrency exchange. The order alleges that Coinbase has violated securities laws by offering its staking rewards program accounts to Alabama residents without proper registration to sell these securities.

The order grants Coinbase a 28-day period to present a case explaining why they should not be instructed to cease selling unregistered securities in Alabama. On the same day, Coinbase was also served with a lawsuit notice from the United States Securities and Exchange Commission (SEC), accusing them of offering unregistered securities. According to regulators, Coinbase takes a portion of the staking profits before distributing them to investors. The action taken by the Alabama Securities Commission does not prohibit Coinbase from offering staking as a service, as long as it adheres to Alabama’s laws.

Additionally, the Alabama Securities Commission emphasized that Coinbase’s nearly 3.5 million staking rewards program accounts across the country are not protected by the Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC). This lack of protection exposes the more than 33,000 accounts held by Alabama investors, leaving them susceptible to potential losses.

Investors are advised to contact the Alabama Securities Commission to verify the registration status of a staking rewards program before investing their funds. Simultaneously, the SEC’s lawsuit against Coinbase alleges that the exchange never registered as a broker, national securities exchange, or clearing agency, thus bypassing the required disclosure framework for securities markets.

Gary Gensler, Chair of the SEC, addressed the recent lawsuit against Coinbase, stating that the cryptocurrency exchange allegedly deprived its customers of essential safeguards against fraud and manipulation. Another cryptocurrency exchange, Kraken, recently settled with the SEC for $30 million regarding its US crypto staking program. Furthermore, an ongoing SEC lawsuit is also underway against cryptocurrency exchange Binance