S.E.C. Accuses Coinbase of Breaking Market Rules

The Securities and Exchange Commission sued Coinbase, the largest cryptocurrency trading platform in the United States, on Tuesday, claiming that the company broke securities law by not registering as a broker.

The nation’s top securities regulators filed the lawsuit a day after it sued Binance, the world’s biggest cryptocurrency trading exchange, for mishandling customer funds and lying to American regulators and investors about its operations.

Coinbase has made billions facilitating the sale of crypto assets, the S.E.C. said in a statement, but deprived investors of significant protections.

The complaint, which was filed in a Manhattan federal court, claims that Coinbase operated as an unregistered exchange even though it told investors in going public that there were risks in how it was operating and that some of the products traded on its platform might be deemed to be securities by regulators.

“You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones: the consequences for the investing public are far too great,” Gurbir S. Grewal, the director of the S.E.C.’s Division of Enforcement, said in the statement.

The suit against Coinbase, long anticipated by the company, comes as its executives and others in the crypto industry are hoping to shift the narrative about digital assets. Coinbase’s chief legal officer, Paul Grewal, is slated to testify before a House committee today about a draft bill regulating crypto, introduced last week. Coinbase has said that it welcomes regulation, and wants to cooperate with the S.E.C.

But the company has also long criticized the agency, saying it regulated by enforcement and that legislation would send a message that lawmakers, rather than regulators, dictate the rules. Mr. Grewal said that he would tell lawmakers that the United States was “falling behind the rest of the world when it comes to sensible legislation” and that “the rest of the world is not waiting for us.” But he may find himself facing questions about the case against Coinbase instead.

The S.E.C. lawsuit is the latest in a multiyear crackdown on the crypto market by the regulator, which has picked up steam following the collapse of the FTX crypto currency exchange in November and criminal charges against its founder, Sam Bankman-Fried.

This is a developing story. Check back for updates.