Crypto stocks drop after US SEC sues Coinbase for failing to register

June 6, 2023 9:26 AM EDT

The logo for Coinbase Global Inc, the biggest U.S. cryptocurrency exchange, is displayed on the Nasdaq MarketSite jumbotron and others at Times Square in New York, U.S., April 14, 2021. REUTERS/Shannon Stapleton

By Manya Saini and Sinéad Carew

(Reuters) -Shares of Coinbase Global fell on Tuesday and were on track for their biggest one-day percentage decline since late March after the cyrptocurrency exchange found itself in the crosshairs of the U.S. securities regulator along with Binance.

The U.S. Securities and Exchange Commission sued Coinbase, accusing it of illegally operating without registration with the regulator. That happened a day after the SEC filed a lawsuit against Binance and its CEO, Changpeng Zhao.

In a complaint filed in Manhattan federal court on Tuesday, the SEC said Coinbase has since at least 2019 operated as an unregistered broker by handling cryptocurrency transactions, evading the disclosure requirements meant to protect investors.

Coinbase shares were down 13.4% at $50.81 after earlier hitting their lowest level since January. The stock, however, is up nearly 43% on a year-to-date basis.

Global regulators have been keeping a close watch on the crypto world after a string of high-profile collapses wiped out more than a trillion dollars from the digital asset industry's market capitalization last year.

"For a lot of companies specifically within the crypto ecosystem, this is the regulatory response that investors have been concerned (about) for years now. These were largely unregulated," said Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management Company.

While the Coinbase news helped drag down Blockchain farm operator Bitfarms earlier on Tuesday, the stock has since recovered and was last up 1.8%.

Crypto miner Riot Platforms was down 0.7% while Hut 8 Mining fell 1.2%. Marathon Digital reversed earlier losses and was last up 1.6%.

Also, after falling earlier, Bitcoin, the world's biggest cryptocurrency, was up 1.4%. Binance's cryptocurrency was up 0.24% after falling 9.2% on Monday.

Coinbase had disclosed in March that it received a "Wells notice" from the SEC threatening a potential lawsuit over certain products.

Paul Grewal, chief legal officer and general counsel at Coinbase, issued a statement on Tuesday saying the "SEC's reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America’s economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance."

"The solution is legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation. In the meantime, we'll continue to operate our business as usual," Grewal said.

(Reporting by Manya Saini and Shristi Achar A in Bengaluru, Sinéad Carew in New York; editing by Paul Simao)

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