Coinbase Faces $5M Penalty from New Jersey Securities Bureau and SEC Charges, Stock Tumbles 20%

The New Jersey Bureau of Securities has issued a Summary Cease and Desist Order against leading cryptocurrency exchange Coinbase, Inc. for allegedly offering unregistered securities tied to its cryptocurrency staking services. The Bureau has further levied a hefty penalty of $5 million against Coinbase.

This action was led by the New Jersey Office of the Attorney General and the Division of Consumer Affairs, aiming to enforce compliance with Securities Law. The violation pertains to Coinbase’s promotion of unregistered securities to New Jersey residents through their staking services. However, this order does not prevent Coinbase from offering staking services, as long as it aligns with New Jersey law.

Staking is a process where investors commit their crypto assets for a specified period to aid blockchain transaction validation, and in return, receive additional cryptocurrency. Coinbase’s staking program, which promises returns up to 10%, is under scrutiny. Coinbase pools the investors’ crypto assets and uses a team of engineers or contracts with third-party validators to generate staking rewards. These profits are then shared with investors after Coinbase’s cut.

“Companies cannot make up their own rules in the cryptocurrency securities market. They need to properly address the risks of investing in crypto,” stated Shirley Emehelu, Executive Assistant Attorney General. Cari Fais, Acting Director of the Division of Consumer Affairs, emphasized the necessity of registering anyone selling securities in New Jersey.

Coinbase’s staking securities are not insured by the Federal Deposit Insurance Corporation or Securities Investor Protection Corporation. Over 3.5 million investors across the country, including approximately 145,270 New Jersey investors, are not shielded from loss.

This legal action is the culmination of a collaborative investigation by state securities regulators, led by California and inclusive of multiple other states.

Further, the U.S. Securities and Exchange Commission (SEC) has also charged Coinbase with operating as an unregistered securities exchange, broker, and clearing agency. This double whammy of regulatory trouble has caused a severe reaction in the market, with Coinbase’s stock price plunging more than 20%.

The Bureau reiterated its commitment to protect investors from investment fraud and ensure the regulated operation of the securities industry in New Jersey.


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Messari Founder Ryan Selkis Launches Advocacy Group in Response to Recent SEC Actions

Following the U.S. Securities and Exchange Commission’s (SEC) charges against popular cryptocurrency exchanges Binance and Coinbase, Messari founder Ryan Selkis has launched a new advocacy group named @DFA2024. The group aims to counter the “relentless fear, uncertainty, and doubt (FUD)” concerning the cryptocurrency industry.

Selkis used his personal Twitter account to publicly announce the organization’s launch. According to his tweets, the group will focus on running pro-crypto messaging campaigns to push back against perceived negative bias.

Moreover, Selkis expressed strong dissatisfaction with the current leadership of the SEC under Chair Gary Gensler. “I do not respect the SEC under Chair Gensler,” he tweeted, making clear his view of the regulatory body’s current direction.

“We’ll be fighting like hell the next 18 months to elect common sense politicians that will restore regular order to the regulatory state,” Selkis further added. This statement suggests that the newly formed advocacy group may involve itself in political lobbying efforts to promote cryptocurrency-friendly policies.

Selkis also indicated a need for what he sees as “forward-thinking leaders,” rather than what he labeled as “incompetent and crooked cops on the beat,” a clear critique aimed at the current leadership of the SEC.

The formation of the @DFA2024 comes amid increasing regulatory scrutiny towards cryptocurrency exchanges in the United States. Just today, the SEC announced charges against Binance and Coinbase, two of the largest cryptocurrency exchanges worldwide. The charges and the perceived aggressive stance of the SEC towards the crypto industry appear to have catalyzed Selkis’s initiative.


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CFTC Chairman Rostin Behnam Urges Congress for Regulatory Action on Digital Commodity Markets

Rostin Behnam, the Chairman of the Commodity Futures Trading Commission (CFTC), recently urged the U.S. House Committee on Agriculture to take legislative action to regulate the digital commodity market. Testifying at the Committee’s “Future of Digital Assets” hearing, he expressed the need to protect customers and ensure market resilience and stability in the face of growing volatility.

This call follows the Financial Stability Oversight Council’s landmark report last year, which highlighted financial stability risks associated with the digital asset market. The council recommended Congressional action to fill the regulatory gap, particularly over the spot market for digital assets that are not securities.

Behnam highlighted the pressing nature of these recommendations in the wake of events such as the bankruptcy of multiple digital asset platforms and alleged manipulative trading practices that undermined market confidence. He also drew attention to recurrent cybersecurity vulnerabilities that led to billions in lost funds.

Referencing the 2008 financial crisis, Behnam proposed that similar principles of market regulation – transparency, reporting, and registration – be applied to the digital commodity market. He stressed the need for rules focused on customer asset protection, trading activity surveillance, and the enforcement of stringent cybersecurity standards.

The chairman listed several key regulatory provisions, including robust customer protections, market integrity assurance, and adequate funding for regulation enforcement. He also highlighted the unique role of the CFTC in this process, emphasizing that it should be fully empowered to require necessary risk and operational disclosures from registered entities.

Behnam underscored that the new legislation must not undermine existing laws, particularly where securities laws apply. He further stressed that the CFTC’s authority in the spot market for digital commodities is presently limited to acting only after fraud has occurred, suggesting that it should be empowered to proactively establish rules to prevent fraud.

Finally, Behnam noted the CFTC’s unique funding structure, being the only financial market regulator that relies on Congress for funding. He urged Congress to provide the necessary resources for any new authority, as managing the digital commodity market within the current regulatory framework and resources would be challenging.

Behnam concluded his testimony by expressing optimism in the Committee’s efforts to address gaps in digital asset regulation and committed to working alongside the Committee and Congress members on the legislative proposal.


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