After a series of high-profile crypto industry crashes in 2022, including the bankruptcy of FTX, regulators in the United States launched an intensified crackdown. They research crypto exchanges and other digital asset service providers.
One regulator that has been very active in this campaign is the US Securities and Exchange Commission (SEC). The SEC is an independent agency of the United States federal government responsible for overseeing many aspects of the United States securities industry, including the stock exchange, broker-dealers, investment advisors, and publicly traded companies. . Its main purpose is to protect investors.
SEC lawsuits against Binance and Coinbase
After cracking down on Kraken and Circle earlier this year, the commission has focused on the industry's biggest players, Binance and Coinbase, and this week filed two lawsuits against two of the world's largest crypto exchanges.
Specifically, on June 5, the SEC sued Binance and its founder Changpeng “CZ” Zhao for various violations, such as offering unlisted securities, mixing investor funds, and denying BinanceUS clients trades on international stock markets. platforms.
“Among other things, the SEC alleges that while Zhao and Binance publicly stated that US clients were prohibited from trading on Binance.com, Zhao and Binance effectively lifted controls to covertly allow wealthy US clients to continue trading. Trading on the Binance .com platform,” the agency said in a press release.
Similarly, a day later, the SEC accused Coinbase of "failing to register the offer and sale of a crypto asset betting program as a service" and generating billions of dollars in profits by "facilitating the illegal buying and selling of crypto assets." ." . Securities".
About 67 cryptocurrencies are considered securities by the SEC
In 2017, former SEC Chairman Jay Clayton warned crypto exchanges that many of their listed products would likely qualify as securities and therefore need to be registered under federal securities regulations.
To determine whether a cryptocurrency is a security, regulators first check whether the asset is an “investment contract”. This is determined by assessing whether the asset meets the three criteria of the Howie test.
According to this legal review, an investment agreement exists "when money is invested in a joint venture and there is a reasonable expectation that it will generate profits through the efforts of others".
Currently, the number of crypto assets that the SEC considers securities to be currently around 67, with the securities regulator adding more than a dozen tokens following lawsuits against Binance and Coinbase.
These cryptocurrencies, which securities regulators call "crypto asset securities", include BNB, BUSD, SOL, ADA, MATIC, ATOM, SAND, MANA, AXS, FLOW, NEAR, and NEXO.
But long before the lawsuits against Binance and Coinbase, the SEC explained at length how and why many of these digital assets were securities in their eyes.
For example, in April, the commission filed a lawsuit against Bittrex and its former CEO, accusing them of operating an unregistered national stock exchange, broker and clearing agency. Additionally, six crypto tokens available for trading on Bittrex are considered securities, including OMG, DASH, ALGO, TKN, NGC, and IHT.
Meanwhile, the SEC has also indicted numerous crypto-related companies in recent years for making huge profits through private sales and unregistered offerings of their native tokens.
In its latest lawsuit against Coinbase, the SEC mentions Solana Labs' offering of its original SOL token, which is now also considered a security.
Among SOL's offerings, the SEC also noted that Solana Labs "raised more than $314 million from investors in a private sale that took place in August 2021."
This means that these “crypto asset securities” are actually unregistered securities, meaning they are not eligible for US investors.
However, many of these supposedly unlisted securities eventually make their way to crypto exchanges and brokers, allowing unrestricted access for US investors.
Interestingly, the SEC's approach has not been consistent.
The SEC's two-standard approach
Many of the major cryptocurrencies required by the SEC and listed as unlisted securities, including ADA, SOL, and MATIC, are still available from US brokers such as Robinhood.
Robinhood is known for offering one of the most user-friendly retail apps. It offers a total of 18 cryptocurrencies that users can access – including US users. Three of these -- ADA, SOL, and MATIC -- are unregistered securities based on recent legal filings with the SEC against Binance and Coinbase.
So why does the SEC only target crypto exchanges while traditional stockbrokers are not covered by commissions?
Last Friday, Robinhood announced it would be phasing out the three aforementioned cryptocurrencies on June 27. However, this was on their own initiative, not that of the SEC.
The simultaneous listing of these cryptocurrencies on exchanges demonstrates a double standard in regulatory approach, leading to speculation and questions about the SEC's consistency in applying securities regulations to different types of platforms.
Given that, and the fact that Coinbase failed to regulate itself and the entire crypto industry in the SEC, it's hard not to see a sense of hypocrisy when the SEC cracks down on crypto exchanges for their Red Card involvement. Unlisted crypto asset values, while stockbrokers appear to be exempt from similar scrutiny.
Finally, the Commission's recent actions demonstrate what appears to be the selective targeting of the crypto industry, raising concerns about a discriminatory approach. In other words, this differential treatment raises suspicions that the US regulatory landscape may be trying to actively promote the crypto industry beyond its borders.
This article originally appeared on The Tokenist
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