Cease & Desist Order Against Coinbase Citing Crypto Staking Offerings That Violate Securities Law

Morristown Minute

NJ Bureau of Securities Issues Cease & Desist Order Against Coinbase Citing Crypto Staking Offerings That Violate Securities Law.Photo byMorristown Minute

Uninsured Staking Securities: Over 145,000 New Jersey Investors Among 3.5 Million Nationwide Left Exposed to Financial Loss.

New Jersey Bureau of Securities Cracks Down on Coinbase Over Crypto Staking Offerings

In a move that underscores the growing regulation of the digital asset market, the New Jersey Office of the Attorney General and the Division of Consumer Affairs announced today that the Bureau of Securities has issued a Summary Cease and Desist Order against the renowned cryptocurrency exchange, Coinbase, Inc., for breaches of the Securities Law. 

The violations are linked to Coinbase's crypto staking offerings, resulting in a hefty $5 million penalty imposed on the company.

The Bureau has determined that Coinbase sidestepped the Securities Law by offering unregistered securities through its staking offerings to New Jersey residents without preliminary registration. 

While the action does not forbid Coinbase from proposing staking securities, the Bureau stipulates the need for adherence to New Jersey law.

Staking, a practice that involves investors locking their crypto assets for a set period to support the operation of blockchain transaction validations, has grown in popularity. In return for staking, investors are promised additional cryptocurrency. 

Coinbase's staking model involves pooling investors' crypto assets, using a team of engineers to run staking validator nodes, or working with third-party validators, to generate rewards, taking a cut before sharing the profits with investors.

The registration requirement for security offerings is designed to ensure that investors receive all pertinent information necessary to weigh the risks associated with an investment, including staking securities.

Shirley Emehelu, Executive Assistant Attorney General, asserted, “The cryptocurrency securities market is not a free-for-all where companies can make up their own rules. These companies play up the rewards but are less likely to address the risks of investing in crypto and through this action we are making sure they comply with our rules.”
Acting Director of the Division of Consumer Affairs, Cari Fais, echoed these sentiments. “The rules are clear. Anyone selling securities in New Jersey must register and comply with the State’s Securities Law. The Bureau of Securities will continue to protect investors by monitoring the marketplace to ensure that everyone is following the rules, especially when it comes to the ever-evolving digital asset market.”

The order follows a multi-state task force investigation by state securities regulators led by California and participated in by several other states. 

The New Jersey Bureau’s investigation was handled by Investigator Delfin Rodriguez, and the Bureau is represented by Deputy Attorney General Evan A. Showell.

Coinbase's staking securities, with over 3.5 million investors nationwide and approximately 145,270 in New Jersey as of March 29, 2023, are not insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation, leaving investors unprotected from loss.

The Bureau urges all investors to check the registration status of staking securities or any other security before investing their money. It is responsible for safeguarding investors from investment fraud and regulating the securities industry in New Jersey. 

Anyone seeking assistance, or wishing to raise issues or complaints about New Jersey-based financial professionals or investments, should reach out to the Bureau or visit their website at www.NJSecurities.gov.

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