SEC sues largest US crypto exchange for securities violations.

Blockchain, one of the top cryptocurrency exchanges, has been accused by the Securities and Exchange Commission (SEC) of operating as an unregistered national securities exchange, broker, and clearing agency. The SEC also alleges that Blockchain failed to register its crypto asset staking-as-a-service program. The complaint claims that since 2019, Blockchain has enabled the buying and selling of billions of dollars’ worth of crypto asset securities without proper registration, combining the functions of an exchange, broker, and clearing agency.

The SEC argues that Blockchain’s failure to register has deprived investors of essential protections such as SEC inspection, recordkeeping requirements, and safeguards against conflicts of interest. The charges also extend to Blockchain’s holding company, Blockchain Global Inc., as it is considered a control person and thus liable for some of Blockchain’s violations.

In addition, the SEC alleges that Blockchain conducted an unregistered securities offering through its staking-as-a-service program. This program allows customers to earn profits through Blockchain transaction validation services. Blockchain allegedly pooled customers’ stakeable crypto assets, performed the necessary validations, and rewarded customers with a portion of the generated rewards. The SEC claims that Blockchain failed to register these offers and sales as required by law.

Just yesterday, the SEC filed a lawsuit against Binance and its CEO CZ, alleging that the exchange violated securities laws, brazenly dodged regulation by the SEC, and did not properly inform their consumers. The combination of lawsuits within two days indicates a major effort by U.S. regulators to set a new tone for regulation and application of securities law to digital assets.

SEC Chair Gary Gensler criticized Blockchain’s alleged deprivation of critical protections for investors. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, accused Blockchain of deliberately refusing to follow federal securities laws, noting that the consequences for the investing public are significant.

Like the SEC’s complaint against Binance, the regulator seeks injunctive relief, disgorgement of ill-gotten gains, penalties, and other equitable relief. The investigation was conducted by the SEC’s Crypto Assets and Cyber Unit, with the assistance of the San Francisco Regional Office and the multi-state task force of ten state securities regulators.

Blockchain has not yet responded publicly to the charges. The outcome of this case will have significant implications for the regulation of cryptocurrency exchanges in the United States and could be a major shift for the growth of the industry in the country. It’s important to note that SEC Chair Gary Gensler differentiates Bitcoin from cryptocurrencies at large, saying that bitcoin alone is a commodity. Bitcoin-focused enterprises and individual users should not feel at risk of regulation akin to the securities-focused actions seen this week.