Coinbase stock plunges after reports it faces SEC investigation

People watch as the logo of Coinbase Global Inc, the largest U.S. cryptocurrency exchange, is displayed on the Nasdaq MarketSite jumbotron in Times Square in New York, U.S. April 14, 2021.

Shannon Stapleton | Reuters

Stock Coinbase fell more than 15% on Tuesday on reports that the SEC is investigating whether the platform is offering unregistered securities.

Coinbase shares have lost over 77% of their value this year.

The US Securities and Exchange Commission is looking into whether the company allows users to illegally trade digital assets that are not registered as securities, a source confirmed to CNBC. the news was before reports Bloomberg.

“I’m happy to say this again and again: We are confident that our rigorous due diligence process — a process that the SEC has already reviewed — is keeping securities off our platform,” said Coinbase General Counsel Paul Grewell. on twitter. “We look forward to engaging with the SEC on this matter.”

This SEC investigation was reportedly pre-existing and was separate from Coinbase’s alleged insider trading scheme that led to fraud allegations against a former Coinbase product manager and two others on Thursday. But the SEC also filed a complaint the same day, alleging that nine of the 25 tokens allegedly traded under the scheme were securities.

The argument about how to classify cryptocurrency tokens is debatable. Generally speaking, if cryptocurrencies are commodities (like other currencies), they will be regulated by the Commodity Futures Trading Commission. But many crypto projects are financed through the sale of tokens, the main value of which is speculative. Chairman of the Securities and Exchange Commission Gary Gensler said that “many of these underlying tokens have the attributes of securities” and should be regulated as such to protect investors.

In a recent agency lawsuit against an alleged insider trading scheme, the SEC wrote: “A digital token or cryptoasset is a security of a cryptoasset if it meets the definition of a security, which the Securities Act defines as including an “investment contract”, i.e. if it is an investment of money in an ordinary enterprise with a reasonable expectation of profit derived from the efforts of others.”

Other crypto firms such as San Francisco-based Ripple are also fighting lawsuits from the SEC.

Compared to Binance and FTX, Coinbase is more selective in its token listings. Coinbase lists over 200 of these tokens. CoinGecko data.