SEC Accusations against Coinbase: Unregistered Exchange

Coinbase’s Context: Primary Functions of the Platform

Operations and Relationship with CGI

According to the complaint filed by the SEC, CGI is considered a “control person” of Coinbase and therefore is responsible for some of the violations committed by Coinbase.

Coinbase is an online trading platform that allows customers to buy, sell, and trade hundreds of cryptocurrencies. In addition to the trading platform, Coinbase also offers other services such as Prime and Wallet.

Prime is a service offered to institutional customers, allowing them to access a wide cryptocurrency market outside of Coinbase’s prices. Wallet, on the other hand, routes customer orders through decentralized trading platforms to access liquidity outside the Coinbase platform.

Coinbase also offers an “Asset Hub” where issuers can list, launch, and grow their cryptographic assets. Coinbase does not limit the ability of cryptocurrency issuers or promoters to trade on the platform.

Coinbase claims to provide technological products and services and financial infrastructure to enable anyone with an internet connection to engage with cryptographic assets.

Coinbase, Prime, and Wallet are available on both the Coinbase website and the mobile application.

• Coinbase claims to serve over 108 million customers and be one of the world’s largest cryptocurrency trading platforms.
• In March 2023, Coinbase offered trading of approximately 254 cryptocurrency assets on its platform and allowed users to trade over 16,000 cryptocurrencies through Wallet.
• The majority of Coinbase’s revenue comes from transaction fees on its cryptocurrency exchanges.
• In 2021, Coinbase generated $6.8 billion in transaction revenue out of a total of $7.4 billion in net revenue.
• In 2022, it generated over $2.2 billion in transaction revenue out of a total of $3.1 billion in net revenue.
• Coinbase’s revenues and expenses flow to CGI, the parent company of Coinbase.

Coinbase and CGI share the same board of directors, and many CGI executives hold the same positions in Coinbase, including CEO Brian Armstrong. The two entities operate through the same website and share public information through various channels.

Lastly, CGI’s Code of Conduct and Business Ethics applies to both CGI and Coinbase, and the two entities are often collectively referred to as “Coinbase.”

Customer Management and Trade Facilitation

Coinbase actively engages in marketing activities to promote its platform, Prime, and Wallet, encouraging customers to trade cryptocurrencies. Coinbase assists customers in opening and using trading accounts, managing funds and cryptocurrencies, and routing and managing orders.

Coinbase presents itself as a reliable and secure platform that provides access to hundreds of cryptocurrencies. It uses its website and social media to advertise its services, attracting individuals and businesses interested in trading and using cryptocurrencies.

Coinbase invests hundreds of millions of dollars each year in marketing and sales to attract new customers. It uses monetary incentives and promotions to attract investors to its platform.

The Coinbase website includes a “Learn” section that provides beginner’s guides, practical tips, and market updates on cryptocurrencies. Coinbase also offers a program called “Learning Rewards” that allows cryptocurrency issuers to provide content to Coinbase customers, allowing them to earn cryptocurrencies in exchange for engaging with the content.

Coinbase positions itself as a provider of brokerage services. For example, the Prime service is marketed as a prime brokerage platform that provides institutions with everything they need to execute transactions and custody assets at scale. Coinbase also offers advanced trading analysis and tools to meet the needs of sophisticated investors.

Additionally, Coinbase facilitates decentralized trading (DEX) through Coinbase Wallet, allowing users to trade thousands of tokens and compare rates across different exchange platforms.

Funds and Crypto Asset Custody and Control of Customers

Coinbase requires customers to create an account on coinbase.com and transfer their funds in cryptocurrencies or fiat currency to Coinbase in order to buy, sell, or trade on the Coinbase and Prime platforms. Once the funds are transferred to Coinbase, the corresponding amount is credited to the customer’s account in Coinbase’s internal ledger. The ledger tracks the deposits and withdrawals of each customer, but the customers’ funds and cryptocurrency assets are generally commingled, meaning they are mixed together.

According to the Coinbase User Agreement, cryptocurrencies and fiat currency transferred from a customer to Coinbase are considered “custodial assets held by Coinbase on behalf of the customer.” Coinbase holds the private keys to the digital assets used to process transactions in a combination of online and offline storage. It uses shared blockchain addresses controlled by Coinbase to hold customers’ cryptocurrency assets. Coinbase does not create a separate blockchain address for each customer and treats the cryptocurrency assets held in its wallets as fungible and equivalent to each other.

Fiat currency deposited with Coinbase is held in a “US Dollar Wallet” called the “USD Wallet.” According to the Coinbase User Agreement, a customer’s USD Wallet balance is held in common deposit accounts controlled by Coinbase.

Market Maintenance and Crypto Asset Trading Infrastructure

The platform allows customers to buy, sell, and spend cryptocurrencies. The Coinbase platform provides information on current and historical prices and other relevant information for trading cryptographic assets, similar to those available on traditional securities platforms.

Coinbase allows multiple buyers and sellers to place orders for cryptocurrencies on their platform. Orders can be placed for different trading pairs, usually involving two cryptocurrencies traded against each other or a cryptocurrency traded against a fiat currency. Coinbase maintains order books for each trading pair on a centralized server.

Coinbase specifies that when customers buy or sell cryptocurrencies through the platform, they are not trading directly with Coinbase. Instead, Coinbase acts as an “agent” to facilitate transactions between customers.

The structure and functionalities of the unregistered Coinbase platform are similar to those of regularly registered national stock exchanges. This includes displaying orders, the order book with various order types, and matching orders following trading rules.

In summary, Coinbase offers a platform for trading cryptocurrencies similar to a traditional stock exchange, allowing customers to place orders and facilitating transactions between buyers and sellers.

Visualization Platform

A subpage called “Explore” on the Coinbase website provides a list of cryptocurrency prices for over 16,000 cryptographic assets.

Customers can filter the list by selecting “Tradable” and access the “Trading Page,” which displays approximately 260 cryptocurrency assets available for trading on the Coinbase Platform.

The trading page shows the current price of each cryptographic asset in US dollars or other fiat currencies, market capitalization, 24-hour trading volume, and circulating supply of the cryptographic asset.

It is also possible to view historical data for each asset through charts showing price trends over the selected period.

On the Trading Page, crypto assets are listed in descending order based on market capitalization. Customers can click the “Trade” button for a specific cryptocurrency and access their Coinbase account, where they can view their balance and place trading orders, including the ability to trade with other customers for the selected cryptocurrency.

Through the Coinbase Platform, open orders for each crypto asset pair are displayed, along with real-time bid and ask prices, trading volume, and transaction history. Coinbase also provides historical data on the trading of each cryptographic asset available on the platform and offers the ability to compare data on cryptographic asset transactions.

In summary, Coinbase offers a visualization platform that allows customers to monitor cryptocurrency prices, access real-time trading data and historical data, and place trading orders.

Order Types and Order Book

On the Coinbase Platform, customers can place various types of buy and sell orders, including market orders, limit orders, and stop limit orders.

Market orders allow buying or selling a specific quantity of cryptocurrency at the best available market price. Limit orders enable buying or selling a specific quantity of cryptocurrency at a specific or better price. Stop limit orders allow placing a buy or sell order only if the price reaches or surpasses a certain stop level.

To place a buy order, the customer must have sufficient funds in their Coinbase account, while for a sell order, they must have the asset available in their account.

Orders that can be immediately executed are called “taker orders” and take liquidity from the Coinbase Platform. Orders that are not immediately executed are called “maker orders” and provide liquidity to the market. Maker orders remain on the order book until they are canceled, expire, or are fully executed by taker orders.

Coinbase uses an automated electronic matching engine to handle trading on the Platform. Orders are matched based on a price-time priority, and the identity of buyers and sellers is not revealed. Taker orders are matched with the most timely maker orders at the best available price in the order book.

After orders are matched, Coinbase immediately adjusts transactions by debiting and crediting customer accounts to reflect new positions. These transactions occur on Coinbase’s internal accounting books and not on a blockchain. Customers can withdraw their assets after the transaction settlement.

Coinbase applies fees for operations executed on its platform. Fees can be a percentage of the order amount or a fixed commission based on the transaction value. Fees are also charged for Prime order routing and execution services. Coinbase also charges a flat 1% fee for transactions executed through the Wallet swap/trade feature.

In summary, Coinbase offers different types of orders for cryptocurrency trading on its platform, uses an electronic matching engine to handle trading, adjusts transactions immediately, and applies fees to executed operations.

Risk Assessment and Prime Wallet: Assets Offered and Sold as “Securities”

As early as 2016, Coinbase recognized that some crypto assets could be considered securities under the Howey test, used to determine whether an agreement involves an investment contract.

In 2018, Coinbase introduced the “Coinbase Crypto Asset Framework” to evaluate listing requests from crypto asset issuers. In 2019, Coinbase founded the Crypto Rating Council (CRC), which provided a framework for analyzing cryptographic assets under the Howey test. Coinbase used the CRC framework to evaluate cryptographic assets and continued to add new cryptographic assets to its platform, even though it recognized that they had security-like characteristics.

Coinbase collaborated with crypto asset issuers seeking to list their assets on the platform, identifying potential obstacles related to the Howey test and suggesting changes to their disclosures to avoid issues. Coinbase was aware of the risks associated with offering cryptographic assets considered securities and publicly disclosed potential risks in its presentations to the Securities and Exchange Commission (SEC).

Coinbase’s parent company, Coinbase Global Inc. (CGI), filed an S-1 form with the SEC to become a public company. In the S-1 form, CGI acknowledged the risk that the cryptocurrency assets offered by Coinbase could be considered securities and that Coinbase could be subject to regulatory scrutiny and sanctions for improperly characterizing cryptographic assets.

During the period in question, Coinbase made several cryptographic assets considered securities available for trading on its platform, including AMP, DDX, LCX, OMG, POWR, RLY, and XYO. These assets were offered and sold as investment contracts, inducing investors to expect profits based on the efforts of issuers and promoters.

Coinbase provided market information and statistics on the cryptographic assets on its platform, without limiting transactions to investors treating the assets differently from an investment.

Lastly, the article mentions that Coinbase made the cryptographic assets available in an interchangeable, transferable, and immediately resellable manner without apparent restrictions. Coinbase continued to offer cryptographic assets considered securities despite previous SEC enforcement actions on some of these assets.

Contestation of Coinbase.

It was supposed to register as a National Stock Exchange, Broker, and Clearing Agency.

The contestation against Coinbase revolves around its failure to register with the Securities and Exchange Commission (SEC) as a national stock exchange, broker, and clearing agency.

According to the accusations, Coinbase used its platform to connect buyers and sellers of cryptocurrencies offered as securities, using a programmed trading system with fixed rules to facilitate the trades. However, Coinbase did not register as a national stock exchange, as required by law.

Additionally, Coinbase engaged in securities trading activities on behalf of other users, soliciting potential investors and offering itself as a venue for the purchase and sale of cryptocurrency securities. It also facilitated the management of customer funds and securities through Coinbase-controlled digital accounts and wallets, receiving compensation for such services. However, the platform did not register as a broker with the SEC or operate under the exemptions provided by law.

Lastly, Coinbase was accused of acting as a securities custodian, requiring customers to deposit their cryptocurrencies into wallets controlled by Coinbase. This created a centralized securities management system where deposited and traded securities on the platform were treated as fungible, and customer accounts were debited or credited by Coinbase to settle transactions. However, Coinbase did not register as a clearing agency or operate under the exemptions provided by law.

In summary, Coinbase was accused of failing to register with the SEC as a national stock exchange, broker, and clearing agency, despite using its platform to facilitate cryptocurrency trades as securities.

Staking Program: Coinbase engaged in unregistered securities offering and sales in violation of Section 5 of the Securities Act.

Coinbase was accused of violating Sections 5(a) and 5(c) of the Securities Act for the unregistered offering and sale of securities in its Staking Program. This violation deprived investors of relevant information about the program offerings, including the risks and trends associated with Coinbase’s business and investments in such securities.

Coinbase’s Staking Program was launched in November 2019 and allows investors to participate and earn profits from the proof-of-stake mechanism of various cryptocurrencies, including Tezos, Cosmos, Ethereum, Cardano, and Solana.

Coinbase provides detailed descriptions of all aspects of the program, including the services offered and the efforts made, specifying that these apply to each of the five cryptocurrencies that can be staked.

To participate in the program, investors must open an account on coinbase.com, purchase eligible staking cryptocurrencies on the platform, or transfer cryptocurrencies they already own to Coinbase. Subsequently, investors enroll in the Staking Program and transfer their cryptocurrencies, including private keys, under Coinbase’s control. Previously, customers who had staking-eligible cryptocurrencies on Coinbase were automatically enrolled in the program, but now they must make an explicit choice through Coinbase’s website or mobile application.

A 25% or 35% commission is applied by Coinbase on the distribution of investment returns obtained through the staking action. Coinbase aggregates the cryptocurrencies provided by investors into controlled and segregated omnibus wallets by asset and commits to making all necessary efforts to obtain the expected rewards, which are then distributed to investors proportionally.

The accusation against Coinbase argues that the platform failed to properly register these securities offerings and did not provide investors with essential information regarding Coinbase itself, the staking program, and the use of offering proceeds. These Securities Act violations constitute a serious offense that can result in penalties and legal repercussions for Coinbase.

Proof of Stake.

Coinbase’s staking program utilizes a consensus mechanism called “proof of stake” used by some blockchains. In this mechanism, a group of participants in the blockchain is selected as “validators” to confirm valid transactions, update the blockchain, and receive rewards in cryptocurrency.

To become a validator, one must stake a certain amount of native assets of the blockchain (e.g., ETH for Ethereum). These assets are held as collateral to incentivize validators to perform their duties. Validators may also be subject to fees for the staking and unstaking process, as well as a refundable deposit. If validators fail to achieve satisfactory results, they may face penalties on their staked cryptocurrency activities.

When it comes to creating a new block to add to the blockchain, the protocol selects a validator from those who have staked. The higher the amount of staked assets and the lower the potential validator’s server downtime, the greater the chances of being selected and earning a higher reward.

There are two important periods to consider: the “bonding period” and the “unbonding period.” The bonding period is the time during which cryptocurrencies must be staked by a validator before they can start earning rewards. In some cases, it may take some time before a validator can begin earning. The unbonding period, on the other hand, is the period during which the validator can release the staked cryptocurrencies. Here too, it may take weeks before the validator can unstake the cryptocurrency assets.

During the period when cryptocurrencies are locked in the protocol, owners cannot transact with them, which means they cannot react to market price fluctuations of cryptocurrencies.

Unique Features of Coinbase’s Staking Program.

Coinbase’s Staking Program has unique features compared to individually conducted cryptocurrency staking processes. Through the program, Coinbase offers investors the opportunity to earn proof-of-stake rewards and obtain benefits that may not be available otherwise.

Coinbase’s Staking Program allows investors to participate in staking without requiring a minimum or low deposit, unlike staking protocols that generally require a minimum threshold of cryptocurrency assets. For example, Ethereum’s blockchain requires a minimum stake of 32 ETH (approximately $60,000). With Coinbase, investors can start earning with as little as $1.

Furthermore, the program eliminates the management fees of a validator node, such as purchasing the necessary equipment and software for conducting staking. Coinbase handles the management of validator nodes on behalf of investors, enabling them to earn and receive rewards without having to bear such expenses.

In the past, Coinbase maintained a “liquidity pool” of cryptocurrencies to ensure greater liquidity and faster reward payments in case of unstaking requests. However, starting from April 2023, Coinbase no longer maintains reserves of tradable assets. During the period when the liquidity pool was active, Coinbase offered investors greater liquidity and faster reward payments compared to individual staking processes.

Coinbase has also offered bonuses to participants in the Staking Program, for example, promising a $10 bonus in ETH for investors staking at least $100.

Some privileged investors, known as “Coinbase One members,” have received “Boosted Staking Rewards,” which offered higher net reward rates due to lower fees.

In summary, Coinbase’s Staking Program offers investors earning opportunities and benefits that may not be available in individual staking processes, including no minimum deposit, elimination of validator node management fees, and the potential for faster liquidity and immediate reward payments.

Marketing Coinbase’s Staking Program as an Investment Opportunity.

Coinbase has marketed its Staking Program as an investment opportunity through various channels, including its website, social media, blog, and advertising on Google and other sites.

Coinbase has promoted potential profits through an expected investment return rate, stating that investors could earn up to 6.00% APY on their cryptocurrency.

On the website, the “estimated reward rate” has also been provided for each of the five cryptocurrency assets, as well as the “Staking Market Cap” for those assets.

The official SEC complaint PDF highlights that Coinbase has the ability to modify the reward amount at its discretion, despite Coinbase’s User Agreement stating that rewards are determined by the applicable blockchain network protocols.

Coinbase has released statements and marketing materials advertising returns for investors from the Staking Program, using social media platforms like Twitter. For example, in a tweet on September 29, 2020, Coinbase stated that investors could earn 5% APY with Cosmos Staking Rewards. Other statements advertised returns for ETH2 Staking and Solana Staking.

Coinbase has also marketed its Staking Program as an opportunity to invest in Coinbase’s managerial and entrepreneurial efforts. Examples of promoting returns achieved by investors in the Staking Program, such as in the case of Tezos, have been cited.

Coinbase has also published letters to shareholders highlighting the growth and success of the Staking Program and the adoption of Coinbase’s Blockchain Rewards.

The company has acknowledged the earning and return potential of the Staking Program, both in public documents and during conference calls with analysts. During a quarterly earnings call, Coinbase’s founder and CEO emphasized customers’ ability to stake and earn on their deposited cryptocurrencies. Furthermore, in SEC public documents, Coinbase stated that subscription and service revenues increased due to staking growth.

In summary, the PDF underscores how Coinbase has marketed its Staking Program as an investment opportunity, using its website, social media, and other marketing channels. Specific numbers were provided, such as the expected return rate and the “Staking Market Cap” for various cryptocurrency assets. Coinbase promoted returns for investors and highlighted the success of its Staking Program on various occasions, including shareholder reports and calls with analysts.

Coinbase Profited from the Coinbase Staking Program.

During the period considered, Coinbase offered the Staking Program to all U.S. residents except those in Hawaii and New York.

• U.S. investors had the opportunity to stake and earn staking rewards on:
  • Tezos (XTZ),
  • Cosmos (ATOM),
  • Ethereum (ETH),
  • Cardano (ADA), and
  • Solana (SOL).
• As of July 2022, over 4 million U.S. customers had invested in Coinbase’s Staking Program, compared to 1.725 million at the end of 2021.
• By the end of 2021, the total value of cryptocurrency assets staked by investors in the program was approximately $28.7 billion.
• Coinbase recognizes revenues earned through the Staking Program and includes them in its consolidated balance sheet.
• In Coinbase’s 2022 annual report, $275.5 million in revenues recognized for blockchain rewards were reported, mainly from staking.
• Blockchain reward revenues for 2021 were approximately $223 million, and $10.5 million in 2020. These figures only include gross revenues generated from the Staking Program, while staking rewards paid to investors are recorded as “transaction expenses.”

Coinbase states that it presents staking rewards and other blockchain protocols on a gross basis because it considers itself a leader in staking and other transactions with blockchain networks. However, Coinbase does not disclose detailed transaction expenses, including the actual amounts of staking rewards paid to investors, in its financial statements or elsewhere.

The Coinbase Staking Program, as applied to each of the mentioned five cryptocurrency assets, is considered a security and subject to registration under the Securities Act.

Coinbase describes the Staking Program as identical or applicable to each of the five stakable assets, with differences only regarding the specific asset, reward, and Coinbase’s commission percentage. Coinbase groups investor activities by asset class, so investors staking the same asset are pooled together.

Investors in Coinbase’s Staking Program are Investing Money.

During participation in the program, customers relinquish control of their cryptocurrencies, and Coinbase has control over them.

Investors put their cryptocurrencies at risk in the program and may incur losses if the assets are slashed or destroyed. Although Coinbase commits to reimbursing losses related to slashing, its User Agreement warns that customer funds may not be sufficient to cover all losses.

Additionally, there is a risk of cryptocurrency assets being lost if the blockchain shuts down or ceases operations. In Securities and Exchange Commission (SEC) documents, Coinbase also disclosed the risk of irreversible loss of customer assets due to hacking, loss of private keys, or other security issues.

Coinbase also relies on the operations and liquidity of its partners for customer asset custody, and insurance coverage may not fully cover losses.

In conclusion, participants in Coinbase’s Staking Program are investing money and putting their cryptocurrencies at risk, exposing themselves to various risks related to custody, operations, and security.

Coinbase Investors Participate in a Common Enterprise.

Investors participating in the program enter into a “common enterprise” with Coinbase and other investors. The fortunes of investors are tied to those of other investors and Coinbase itself, as cryptocurrency assets are controlled and pooled by Coinbase in segregated wallets per asset.

Coinbase uses investors’ assets together with its own to participate in the staking process on different blockchain protocols. This increases the likelihood of a blockchain network choosing Coinbase to validate transactions, allowing Coinbase to earn more reliable rewards and distribute returns to investors.

Coinbase retains a commission from staking rewards, determined by Coinbase itself, and distributes returns to investors proportionally to the amount of assets they have staked. Returns are calculated based on the amount of cryptocurrency held, and the more cryptocurrency one holds, the greater the potential for returns.

The fortunes of investors and Coinbase are intertwined since Coinbase retains a portion of staking rewards as a commission. If Coinbase fails to generate the expected returns, neither Coinbase nor investors receive any returns.

Coinbase has offered and sold the Coinbase Staking Program using interstate commerce but has not registered the offers and sales with the SEC nor sought any exemptions from registration. Coinbase’s public communications have not provided complete and detailed information about the staking program, including the actual amounts of rewards paid to investors and other relevant information.

Lastly, Coinbase has stated that there is regulatory uncertainty regarding the status of its staking activities under U.S. federal securities laws but has implemented policies and procedures to ensure compliance with existing laws and regulations.

Compensation Requests:

First Compensation Request: Violation of Section 5 of the Exchange Act (Coinbase).

“By engaging in the acts and conduct described in this claim, Coinbase meets the definition of an ‘exchange’ and, directly or indirectly, has used the mails and instrumentalities of interstate commerce to use any facility of an exchange within or subject to the jurisdiction of the United States to effect any transaction in a security or to report any such transaction, without registering as a national securities exchange pursuant to Section 6 of the Exchange Act [15 U.S.C. § 78f], and without being exempt from such registration.

As a result of the above conduct, Coinbase, directly or indirectly, has violated, is violating, and unless enjoined, will continue to violate Section 5 of the Exchange Act [15 U.S.C. § 78e].”

Second Compensation Request: Violation of Section 15(a) of the Exchange Act (Coinbase).

“By engaging in the acts and conduct described in this claim, Coinbase, a person other than a natural person under the Exchange Act, is a broker and has used the means or instrumentalities of interstate commerce to effect transactions in securities or to induce or attempt to induce the purchase or sale of securities, without registering as a broker and without being exempt from such registration.

As a result of the above conduct, Coinbase, directly or indirectly, has violated, is violating, and unless restrained, will continue to violate Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)].”

Third Compensation Request: Violation of Section 17A(b) of the Exchange Act (Coinbase).

“By engaging in the acts and conduct described in this claim, Coinbase, directly or indirectly, has made use of the mails and means or instrumentalities of interstate commerce to perform the functions of a clearing agency with respect to securities, without registering under Section 17A(b) of the Exchange Act and without being exempted or excluded from such registration.

As a result of the above conduct, Coinbase, directly or indirectly, has violated, is violating, and unless restrained, will continue to violate Section 17A(b) of the Exchange Act [15 U.S.C. § 78q-1(b)].”

Fourth Compensation Request: Violation of Sections 5, 15(a), and 17A(b) of the Exchange Act (CGI as controlling person of Coinbase).

“As stated above, Coinbase has violated Sections 5, 15(a), and 17A(b) of the Exchange Act [15 U.S.C. §§ 78e, 78o(a), and 78q-1(b)].

CGI is, and was during the Relevant Period, a controlling person of Coinbase for purposes of Section 20(a) of the Exchange Act [15 U.S.C. § 78t(a)].

At all relevant times, CGI exercised power and control over its wholly-owned subsidiary, Coinbase, including managing and directing Coinbase, and directing and participating in acts that constitute violations of the Exchange Act by Coinbase.

Therefore, CGI is liable as a controlling person under Section 20(a) of the Exchange Act [15 U.S.C. § 78t(a)] for Coinbase’s violations of Sections 5, 15(a), and 17A(b) of the Exchange Act [15 U.S.C. §§ 78e, 78o(a), and 78q-1(b)]. Consequently, CGI is jointly and severally liable with, and to the same extent as, Coinbase for such violations of the Exchange Act.”

Fifth Compensation Request: Violation of Sections 5(a) and 5(c) of the Securities Act (Coinbase).

“As set forth above, Coinbase, through its offers and sales of the Coinbase Staking Program, directly and indirectly: (a) without a currently effective registration statement for such securities, (1) used the means and instrumentalities of interstate transportation or communication and the mails to sell securities through the use or medium of any prospectus or otherwise, and (2) carried or caused to be carried through the mails or in interstate commerce, by any means or instruments of transportation, securities for the purpose of sale or for delivery after sale; and (b) used the means and instrumentalities of interstate transportation or communication and the mails to offer to sell, through the use or medium of any prospectus or otherwise, securities for which no registration statement had been filed.

As a result of the above conduct, Coinbase, directly or indirectly, has violated, is violating, and unless enjoined, will continue to violate Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and (c)].”

Commission’s Request to the Court.

“Therefore, the Commission respectfully requests that the Court enter a final judgment:

1. Permanently enjoining Defendants, and each of their respective agents, officers, employees, attorneys, and other persons in active concert or participation with any of them, from directly or indirectly violating Sections 5, 15(a), and 17A(b) of the Exchange Act [15 U.S.C. §§ 78e, 78o(a), and 78q-1(b)];
2. Permanently enjoining Coinbase and each of its respective agents, employees, attorneys, and other persons in active concert or participation with any of them, from directly or indirectly violating Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and (c)];
3. Ordering Defendants to disgorge all ill-gotten gains from their violations of the Exchange Act and ordering Coinbase to disgorge all ill-gotten gains from its violations of the Securities Act, with prejudgment interest, pursuant to Sections 20(a), 21(d)(3), 21(d)(5), and 21(d)(7) of the Exchange Act [15 U.S.C. §§ 78u(a) and 78u(d)(3), (5), and (7)];
4. Ordering Defendants to pay civil penalties pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)], and ordering Coinbase to pay civil penalties pursuant to Section 20(d) of the Securities Act [15 U.S.C § 77t(d)]; and
5. Granting such other and further relief as the Court may deem appropriate or necessary for the benefit of investors pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)].”