SEC goes after Coinbase and Justin Sun

in #ethereum2 months ago

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Gaps in the regulatory framework have not prevented the Securities and Exchange Commission (SEC) from going after crypto companies, accusing them of participating in illegal crypto schemes. This applies to all PoS cryptocurrencies, including Ethereum.


On 22 March, the SEC issued crypto exchange Coinbase a Wells Notice, which could lead to enforcement action if corrective measures are not taken. The warning is primarily related to the staking reward programme, which, according to the Howey Test of 1946, means the cryptocurrency can be classified as a security:

⦁ Investing
⦁ In a common enterprise
⦁ With the expectation of profit
⦁ As a result of the work of third parties

The Kraken crypto exchange received a similar letter in February and eventually discontinued its unregistered offer and sale of crypto asset staking and paying $30 million to settle the SEC charges. Coinbase, on the other hand, promised to take the matter to court, defending the right to staking to the last.

Coinbase said that they had met with the SEC more than 30 times in the past nine months. No detailed information has been provided by the regulator on how to differentiate between coins and how to get staking out of harm's way.

The key flaw in the SEC's claim is the lack of clear parameters by which cryptocurrencies can be classified as a security. The PoS algorithm is not a key criterion, as the regulator filed similar charges against Ripple.

Despite Coinbase CEO Brian Armstrong's aggresive stance, the Algorand network announced last night that it was terminating staking for the crypto exchange's customers. This led to a 10% drop in the coin's value.

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Coinbase staking options currently include Ethereum, Solana, Cardano, Tezos and Cosmos, but the precedent has been set, paving the way for further concessions to the regulator.

Justin Sun

And whilst the SEC creates the appearance of dialogue with cryptocurrencies, it has gone straight for the jugular and sued Justin Sun and his companies (the Tron Foundation, BitTorrent Foundation and Rainberry). The founder of the Tron network is not only accused of the unregistered offer and sale of crypto asset securities but also of price manipulation.

According to the regulator, Sun fraudulently manipulated the secondary market for TRX and BTT through extensive wash trading. Sun allegedly directed his employees to engage in more than 600,000 wash trades of TRX between two crypto asset trading platform accounts to give the impression of liquidity and increase the price. The daily volume of "trades" ranged from 4.5 million to 7.4 million TRX. Sun generated proceeds of $31 million from the illegal, unregistered offer and sale of the TRX token.

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"Sun and his companies not only targeted U.S. investors in their unregistered offers and sales, generating millions in illegal proceeds at the expense of investors, but they also coordinated wash trading on an unregistered trading platform to create the misleading appearance of active trading in TRX. Sun further induced investors to purchase TRX and BTT by orchestrating a promotional campaign in which he and his celebrity promoters hid the fact that the celebrities were paid for their tweets," the SEC said in a statement.

The celebrities include DeAndre Cortez Way (Soulja Boy), Jake Paul, Lindsay Lohan, Aliaune Thiam (Akon), and Austin Mahone. Most of them agreed to a pre-trial settlement, each paying a six-figure fine.

StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)

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