In a major blow to the cryptocurrency industry, the U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Coinbase Global Inc., the largest cryptocurrency platform in the United States. The regulatory body alleges that Coinbase has been in violation of securities regulations by allowing its users to trade multiple cryptocurrencies that are actually unregistered securities. As news of the lawsuit broke, Coinbase shares plummeted by 15% in early trade, hitting a low of $50.

SEC vs Coinbase

This development comes on the heels of the SEC’s recent legal action against Binance, the world’s largest crypto platform, for a broader range of violations. The regulatory crackdown on crypto exchanges could potentially relegate digital currencies to the fringes of the U.S. financial system, causing significant disruption in the industry.

The SEC’s 101-page complaint against Coinbase asserts that the company has been evading regulatory oversight by offering exchange, broker-dealer, and clearinghouse functions, despite being subject to securities laws. SEC Chair Gary Gensler expressed concern over Coinbase’s alleged commingling of functions and called for strict adherence to securities regulations in the crypto industry.

The SEC is seeking a court order that would mandate Coinbase’s compliance with securities laws and require the company to relinquish any gains obtained through its alleged illicit activities. Coinbase has yet to respond to the lawsuit, and a request for comment remains unanswered at this time.

Coinbase has been under investigation by the SEC since July of last year, as previously reported by Bloomberg. The company had also received a warning notice from the regulator on March 23, indicating an impending enforcement action. The SEC’s lawsuit against Coinbase on June 6 additionally accuses the platform of violating the agency’s rules with its staking service, a feature that enables customers to earn returns by lending their crypto tokens for blockchain transactions.

This legal action by the SEC highlights the intensifying scrutiny faced by cryptocurrency platforms and their compliance with securities regulations. The outcome of these cases could have far-reaching implications for the future of cryptocurrencies within the U.S. financial system, as regulators aim to establish a more secure and transparent environment for investors.