June 7, 2023

SEC strikes at Coinbase and Justin Sun

Gaps in the regulatory framework do not prevent the Securities and Exchange Commission (SEC) from sending out pre-trial claims to crypto companies, accusing them of illegal work with securities. As such, the regulator means all cryptocurrencies on PoS, including Ethereum.


On March 22, Wells' notification was received by the UScrypto exchange Coinbase with a warning about the use of coercive measures in case of non-compliance. The claim is primarily related to the staking reward program, which, according to the 1946 Howey test, allows cryptocurrency to be classified as a security:

  • Investment
  • To a common enterprise
  • With the expectation of profit
  • From the efforts of third parties
  • I received a similar letter of happiness in Februarythe Kraken crypto exchange, which eventually closed customers access to staking and paid a $30 million fine to the SEC. Coinbase promised to go to court, defending the right to stake to the last.

    Coinbase noted that they met withrepresentatives of the SEC more than 30 times in the last nine months. At the same time, no specifics were received from the regulator on how to delimit coins and how to get staking out of the blow.

    The key flaw in the SEC claim is the lack ofclear parameters by which one cryptocurrency can be attributed to a security, and the other cannot. The PoS algorithm is not a key criterion, since the regulator has similar claims against Ripple.

    Despite the belligerent stance of the generalCoinbase CEO Brian Armstrong, last night, the Algorand network announced the disabling of staking for crypto exchange customers. This caused the coin to drop by 10%.
    SEC strikes at Coinbase and Justin Sun

    Image Source: Cryptocurrency Exchange StormGain

    Currently, staking on Coinbase remains for Ethereum, Solana, Cardano, Tezos, and Cosmos, but the precedent has been set, paving the way for subsequent concessions to the regulator.

    Justin Sun

    And if the SEC creates visibility with crypto exchangesdialogue, Justin Sun and his companies (Tron Foundation, BitTorrent Foundation and Rainberry) were sued directly in court. The creator of the Tron network is accused not only of illegal trading in securities, but also of price manipulation.

    According to the regulator, Sun used the schemefictitious “wash trading”, driving TRX and BTT tokens between affiliated companies. In total, he made over 600,000 transactions between the two accounts in order to create the appearance of liquidity and increase the price. The daily volume of "trading" ranged from 4.5 million to 7.4 million TRX. During illegal operations, Justin Sun received $31 million in income.
    SEC strikes at Coinbase and Justin Sun

    Image Source: Cryptocurrency Exchange StormGain

    “In order to attract the masses and createappearances of integrity Sun ran a massive advertising campaign targeting American investors. Because the celebrities involved in the ad did not disclose to the public the partisan nature of their interest in TRX and BTT, lawsuits have also been filed against them,” the SEC said in a statement.

    Among those involved in the proceedings are:Deandre Cortez Way (Soulja Boy), Jake Paul, Lindsay Lohan, Aliawn Thiam (Akon) and Austin Mahone. Most of the celebrities agreed to a pre-trial settlement, paying a six-figure fine.

    Analytical group StormGain

    (platform for trading, exchanging and storing cryptocurrency)