SEC Charges Tron Founder & Coinbase
25 May 2023
U.S. Regulators Escalate Crypto Industry Crackdown: Tron Founder Justin Sun and Coinbase Face Legal Action.
SEC Charges Tron Founder and Celebrity Promoters, Threatens Enforcement Action Against Coinbase
In a significant escalation of regulatory actions against the crypto industry, the U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Justin Sun, the founder of Tron, and several celebrity promoters. Additionally, the SEC has sent a Wells notice to Coinbase, the largest remaining U.S.-based crypto exchange, signaling a potential enforcement action against the company for allegedly distributing unregistered securities. These developments intensify the long-standing dispute over crypto exchanges’ business models and have significant implications for the industry.
SEC Charges Tron Founder and Celebrity Promoters
The SEC has formally charged Justin Sun with illegal distribution of tokens, including Tronix and BitTorrent, and market manipulation to create the illusion of stability and liquidity. Furthermore, the SEC has implicated a group of celebrities, including Lindsey Lohan and Soulja Boy, who were allegedly paid by Sun to promote these assets on social media. Soulja Boy is one of the few celebrities who did not settle the charges.
Coinbase Receives Wells Notice from SEC
Coinbase, the largest U.S.-based crypto exchange, received a Wells notice from the SEC, indicating that the regulatory body intends to commence an enforcement action against the company. The SEC’s allegations are based on Coinbase’s alleged illegal distribution of unregistered securities. Following the news, Coinbase stock, which has already experienced a 70% decline since its 2021 public listing, fell an additional 10% in after-hours trading. However, Bitcoin and other digital assets remained relatively stable, with losses limited to 3%, buoyed by support from crypto enthusiasts anticipating a potential collapse of the mainstream financial system due to the Federal Reserve’s interest rate hike.
Coin Base’s Response and Regulatory Landscape
Coinbase responded to the development, expressing confidence in their compliance with the law and welcoming the opportunity to present their case before a court. The company believes the potential enforcement actions would primarily pertain to specific aspects of its operations, including the spot market, staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet. It is worth noting that staking services, known for their high yields and reliance on external efforts to generate value, have faced increasing scrutiny from the SEC. The regulatory pressure has intensified following the collapse of FTX, prompting rival exchange Kraken to shut down its staking service and agree to a $30 million settlement for failing to register it with the SEC.
The Turf War and Implications for the Crypto Industry
Coinbase and other crypto industry participants have capitalized on the jurisdictional dispute between the SEC and the Commodity Futures Trading Commission (CFTC) for over a decade. The CFTC considers crypto assets as commodities, while the SEC views them as securities, a perspective gaining traction, particularly with the rise in popularity of staking services. However, it’s important to note that a Wells notice does not always lead to charges or indicate that the recipient has violated the law.
The recent actions by the SEC against Tron founder Justin Sun and celebrity promoters, along with the Wells notice sent to Coinbase, mark a significant escalation in the regulatory crackdown on the crypto industry. These developments bring to the forefront the long-standing dispute over crypto exchanges’ business models and raise concerns about the legality of distributing unregistered securities. The response from Coinbase’s CEO reflects the industry’s determination to navigate the regulatory landscape and highlights the need for greater clarity and collaboration between regulatory bodies. As the crypto industry continues to evolve, the outcome of these regulatory actions will have far-reaching implications for the future of cryptocurrencies and their market participants.