SEC v. Coinbase, Inc. and Coinbase Global, Inc., Complaint, No. 1:23-cv-04738 (S.D.N.Y.), Dkt. 1 (Part 2 of 2)
Document text
Research, not advice. Part of the Bitcoin research archive (October 2026). Claims labelled unverified, contested or fringe are reported, not endorsed; statuses of bills and rules are as of the date checked. Government, court and patent records are public domain; the research notes are CC BY 4.0.
staked assets are held as collateral in the protocol to incentivize validators to
perform required functions. In addition, certain protocols charge crypto asset validators fees to
stake and unstake crypto assets and require an upfront refundable deposit (in addition to the crypto
assets staked). A “correction penalty” is deducted, or “slashed,” from the staked crypto assets of
validators who underperform. Conversely, validators earn rewards, in the form of additional
amounts of the native asset, by timely voting on proposed blocks, proposing new blocks, and
participating in other consensus activities.
314. To create a new block to add to the chain of blocks, the protocol chooses a validator
from among those that have staked. The more the holder stakes, and the less server downtime a
potential validator exhibits, the more likely that holder is to be selected as a validator and receive the
maximum staking reward. Thus, the most successful staking operations maximize the chances of
being selected by staking a large number of assets and having better computer resources to minimize
server downtime.
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315. The amount of time set by a protocol for a crypto asset to be staked by a validator
before earning rewards is referred to as the “bonding period.” And the “unbonding period” is the
length of time set by the protocol to release staked crypto assets back to the validator. In certain
cases, a bonding period may mean that it can take weeks before a validator can begin earning
rewards. The unbonding period may mean it can take weeks for a crypto asset validator to unstake
crypto assets (or release them from staking) and transfer or use them for other purposes. During
the time the crypto assets are bonded to a protocol, the crypto asset owners are unable to transact in
them, for example, to react to market price fluctuations of the crypto assets.
B. Coinbase Offers Investors in the Coinbase Staking Program Unique Features
that May Not Be Available to Investors Staking on Their Own.
316. Through its Staking Program, Coinbase offers and markets an investment
opportunity to receive rewards from proof-of-stake blockchains and gain benefits that may not be
available to those investors if they were to stake crypto assets on their own. In particular, the
Staking Program offers investors the ability, through Coinbase’s efforts, to obtain returns based on
Coinbase’s participation in proof-of-stake activities for the five staking-eligible crypto assets.
Indeed, in a YouTube video marketing its Staking Program, Coinbase stated, “[w]hile it’s possible to
stake crypto on your own, this can be confusing, complicated, and costly” and touted that “Coinbase
is changing all that.”
317. Specifically, the Coinbase Staking Program offers and markets several features that
differentiate it from what staking investors would be able to do by staking and earning rewards on
their own.
318. For one, the Coinbase Staking Program offers no, or low, staking minimums or
deposits. Staking protocols typically require a certain threshold number of crypto assets, or an
additional refundable deposit, to be able to participate in staking, and investors who stake on their
own—not with Coinbase—are subject to those minimum thresholds. For example, the Ethereum
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blockchain requires users to stake a minimum of 32 ETH (currently approximately $60,000) to run a
validator node. But the Coinbase Staking Program allows investors to participate in staking without
having to meet such thresholds; as Coinbase touts, investors can “[s]tart earning with as little as $1.”
319. Relatedly, running a validator node is often expensive, for example due to equipment
and/or software needed to stake. Through the Coinbase Staking Program, investors avoid paying
those expenses because Coinbase operates its own validator nodes to earn and pay investor rewards.
For example, CGI’s February 21, 2023 annual report on Form 10-K filed with the SEC and available
on Coinbase’s website stated: “Staking independently requires a participant to run their own
hardware, software, and maintain close to 100% up-time. We provide a service known as ‘Delegated
Proof of Stake,’ which reduces the complexities of staking.” Similarly, Coinbase acknowledged on
its website that “[b]ecoming a validator is a major responsibility and requires a fairly high level of
technical knowledge.”
320. Further, until approximately April 2023, the Coinbase Staking Program maintained a
“liquidity pool” of crypto assets—for each of the five stakeable assets—that were held in reserve,
which enabled Coinbase to provide investors faster liquidity in connection with unstaking requests.
Effective April 1, 2023, Coinbase purports to no longer maintain reserves of stakeable assets. In or
around October 2022, in response to an FAQ on its website (“Can I trade or send funds while
they’re earning rewards”), Coinbase stated: “You’ll typically be able to cash out your cryptocurrency
that’s earning rewards on Coinbase as you would any other cryptocurrency. Cashing out may be
subject to factors including, but not limited to, your account history, transaction history, and
banking history. In rare circumstances, trades and cash-outs may be delayed while we wait for
staked funds to be unlocked.” As a result, during the Relevant Period, Coinbase was able to offer
investors enhanced liquidity and quicker reward payments compared to staking on their own.
(Currently, in response to the same FAQ, Coinbase’s website states: “Funds can’t be traded or sent
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while they’re staked and earning rewards. You’ll need to unstake them first.”)
321. Coinbase has also offered bonuses to Staking Program participants during the
Relevant Period. For example, in or around June 2022, in a marketing email soliciting staking
investors for ETH, Coinbase promised: “Stake at least $100 to earn [a] $10 bonus … We’ll deposit
the $10 ETH bonus to your account within 45 days. That’s it! You don’t have to do anything else.”
As set forth in Coinbase’s User Agreement, Coinbase also offers, on a promotional basis, “Boosted
Staking Rewards” where specified investors (“Coinbase One members”) are offered “higher net
reward rates” (as a result of Coinbase taking “lower commissions”) for certain stakeable assets.
C. Coinbase Has Marketed the Coinbase Staking Program as an Investment
Opportunity.
322. Coinbase has marketed and continues to market the Coinbase Staking Program to
the general public—through its website, social media pages, and blog, and in Google and other
advertisements—as an investment opportunity to “[e]arn on as much as you want. ” (Emphasis
added.)
323. Specifically, Coinbase markets the possibility of profits through an expected rate of
investment return. For example, during the Relevant Period, Coinbase’s website, an image of which
is shown below, stated that investors can “[e]arn up to 6.00% APY on your crypto.”
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324. On its website, Coinbase also markets the “estimated reward rate” for each of the
five staking-eligible crypto assets (ranging between approximately 2% and 6.12%) and provides the
“Staking Market Cap” for each of those assets (ranging from approximately $568 million for XTZ to
$33.4 billion for ETH). Although the Coinbase User Agreement states that staking “[r]ewards are
determined by the protocols of the applicable [blockchain] network,” Coinbase has acknowledged
publicly its ability to change the reward payout amount at its discretion. For example, in response to
questions about Coinbase’s Staking Program during a quarterly analyst call on or about November 3,
2022, CGI’s CFO stated, “we haven’t changed the reward payout rate on our retail [staking] product
within the year, that has been held consistent.”
325. Historically, Coinbase has made other statements and issued marketing materials
advertising investor returns from the Coinbase Staking Program, including, for example:
• In a post on or about September 29, 2020 on its Twitter page, Coinbase stated,
“[t]oday you can start earning 5% APY with Cosmos Staking Rewards on Coinbase.”
• In a tweet on or about February 16, 2021, Coinbase stated, “ETH2 staking is coming
soon” and told investors they could “earn up to 7.5% APR.”
• In a post on or about June 29, 2022 on its Twitter page, Coinbase stated, “@Solana
staking is rolling out on Coinbase! Start earning up to 3.85% APY.” In a video
embedded in that post, Coinbase stated, “Earn crypto with your crypto. Grow your
crypto with stakeable assets on Coinbase.”
• As of approximately March 2023, Coinbase’s website encouraged investors to stake
their ETH with the Coinbase Staking Program and “get” or “earn 4.07% APY on all
[their] staked ETH” in addition to a 10% bonus for staking at least $100 in ETH.
326. Coinbase has also made statements marketing its Staking Program as an opportunity
to invest in Coinbase’s managerial and entrepreneurial efforts, including statements touting the
growth of Coinbase’s Staking Program and Coinbase’s success in generating investor returns.
327. For example, in a post on its Twitter account on or about May 28, 2020, Coinbase
promoted the returns that investors could earn by investing in the Coinbase Staking Program to
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stake Tezos, by stating that, “[s]ince launching in the US last fall, customers have earned over $2
million in Tezos staking rewards.”
328. Coinbase also posted on its website a CGI shareholder letter dated on or about
August 10, 2021 stating, “we ended Q2 with 1.7 million customers earning yield on their crypto
assets with Coinbase” and touting that adoption of Coinbase’s “Blockchain rewards – primarily
comprised of staking [had] increase[d] more than 300% in Q2 compared to Q1.”
329. Similarly, a CGI shareholder letter posted on Coinbase’s website on or about
November 3, 2022 provided: “We have grown the number of assets supported for staking, including
adding Cardano in Q1 and Solana at the end of Q2 which impacted Q3 results. These new products
help attract new customers onto the platform but are also engaging older vintages of customers on
the platform who find value in these products.”
330. CGI has also acknowledged the Coinbase Staking Program’s “earning” and “yield”
potential and highlighted the program’s growth and success in other SEC public filings and during
quarterly earnings and analyst calls—transcripts of which are available on Coinbase’s website.
331. For example, during CGI’s quarterly earnings call on or about November 3, 2022,
Coinbase’s founder and CEO, when emphasizing investors’ “love” of the company’s “portfolio of
different products,” highlighted the ability of customers who “already have their crypto stored with
[Coinbase]”—through “just one more click”—to “stake and earn yield on their crypto.”
332. Also, in its November 3, 2022 quarterly report on Form 10-Q, CGI stated that it
“saw strong growth in our subscription and services revenue, driven by … growth in staking.” In
the same filing, CGI indicated that its 2022 “[s]ubscription and services revenue increased by $205.6
million compared to the same period for 2021, due, at least in part, to “an increase in blockchain
rewards of $92.4 million” in 2022 “due to the addition of new assets available for staking and
increased staking activity with higher native tokens staked.”
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D. Coinbase Has Profited as a Result of the Coinbase Staking Program.
333. Throughout the Relevant Period, Coinbase has offered the Staking Program to all
U.S. residents, excluding Hawaii and New York residents. Through the Coinbase Staking Program,
these U.S. investors have been able to stake (and earn staking rewards in the form of) XTZ, ATOM,
ETH, ADA, and SOL, as summarized in the following table:
Protocol Asset Approximate Date Available as Part of
the Coinbase Staking Program
Tezos XTZ November 6, 2019
Cosmos ATOM September 29, 2020
Ethereum ETH April 16, 2021
Cardano ADA March 23, 2022
Solana SOL June 29, 2022
334. As of July 2022, over 4 million U.S. customers were invested in the Coinbase Staking
Program—an increase from 1.725 million U.S. investors at the end of 2021. And, as of the end of
2021, the total value of crypto assets committed by investors to the Staking Program was
approximately $28.7 billion.
335. Revenue earned by Coinbase by or through its Staking Program is recognized by
CGI and included on CGI’s consolidated financial statements.
336. In its annual report on Form 10-K for 2022, CGI reported $275.5 million in revenue
recognized for Coinbase’s blockchain rewards, consisting primarily of staking revenue. CGI also
reported blockchain reward revenue for 2021 of approximately $223 million, and of $10.5 million
for 2020. These figures include only the gross, not net, revenue generated by the Coinbase Staking
Program because CGI records staking rewards paid to investors as a “transaction expense.”
337. In its May 10, 2022 Form 10-Q, CGI explained that Coinbase “presents [its staking
and other blockchain protocol] rewards on a gross basis” because Coinbase “considers itself the
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principal” in staking and other “transactions with blockchain networks.”
338. CGI does not disclose Coinbase’s itemized transaction expenses (including staking
rewards paid to investors) in its financial statements or elsewhere.
E. The Coinbase Staking Program as It Applies to Each of the Five Stakeable
Crypto Assets Is a Security.
339. At all relevant times, the Coinbase Staking Program, as it applied to each of the five
stakeable assets, was an investment contract under Howey, and therefore a security, whose offers and
sales were subject to registration under the Securities Act. Coinbase describes all aspects of the
Staking Program as being the same for, or applicable to, each of the five stakeable assets, with the
only differences being the asset that is staked, the reward that is paid, and the percentage
commission Coinbase pays itself as to each asset. As discussed below in Section V.E.ii, Coinbase
segregates, pools, and stakes investor assets by asset class. In other words, Staking Program
investors’ XTZ, ATOM, ETH, ADA, and SOL are not all pooled together, but the assets of all
Staking Program investors who stake, for example, XTZ, are pooled together with the assets of all
other Staking Program investors who stake XTZ.
i. Participants in the Coinbase Staking Program Invest Money.
340. Coinbase’s offer and sale of the Coinbase Staking Program for each of the five
stakeable assets involves an investment of money, in the form of staking-eligible crypto assets.
Here, investors tender their crypto assets to Coinbase in order to participate in the Coinbase Staking
Program, by either purchasing staking-eligible crypto assets from Coinbase or transferring their own
crypto assets to their Coinbase account for staking.
341. Customers give up control of their crypto assets while they participate in the Staking
Program and cannot use them for any purposes, such as trading or transferring them to another
account. Coinbase has control over all of the crypto assets invested in the Coinbase Staking
Program, including through Coinbase’s omnibus crypto asset wallets.
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342. Investors put their crypto assets at risk as part of the Coinbase Staking Program.
343. For one, once an investor’s crypto assets are staked to the underlying blockchain
protocol, those assets are at risk of being slashed (or destroyed). While Coinbase pledges to
reimburse investors for any slashing-related losses, its User Agreement describes how customers’
assets are subject to all of Coinbase’s custodial and operational risk, stating, for example, that “[a]ny
bond or trust account maintained by Coinbase for the benefit of its customers may not be sufficient
to cover all losses incurred by customers.”
344. Relatedly, once an investor’s crypto assets are staked to the underlying blockchain
protocol, those assets are at risk of being lost, for example in the event the relevant blockchain is
forced or chooses to shut down or cease operations.
345. Further, in its SEC filings, CGI has disclosed the staking-related risk that
“customers’ assets may be irretrievably lost” due to cybersecurity attacks, loss of customers’ private
keys, or other security issues, or if Coinbase’s node “validator, any third-party service providers, or
smart contracts fail to behave as expected.” In addition, CGI’s September 30, 2022 Form 10-Q
provided that customers’ crypto assets “are not insured or guaranteed by any government or
government agency”; that Coinbase is “dependent on [its] partners’ operations, liquidity and
financial condition for proper … safekeeping of customer assets”; that Coinbase’s liabilities are not
limited for certain customer contracts; and that insurance coverage in certain instances is limited and
“may not cover the extent of loss nor the nature of such loss, in which case [Coinbase] may be liable
for the full amount of losses suffered, which could be greater than all of [its] assets.”
ii. Coinbase Staking Investors Participate in a Common Enterprise.
346. Investors in the Coinbase Staking Program participate in a common enterprise with
Coinbase and with other Staking Program investors in the same staked asset.
347. First, the fortunes of investors in the Coinbase Staking Program are tied together
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with those of other investors staking the same asset—including Coinbase.
348. Coinbase controls and pools Staking Program investors’ crypto assets, together with
Coinbase’s own crypto assets, in wallets controlled by Coinbase and segregated by asset. And
Coinbase stakes its own crypto assets alongside those of Staking Program investors, including as part
of the same staking pools on each of the five protocols.
349. Specifically, as set forth in its User Agreement, Coinbase pools investors’ crypto
assets in omnibus wallets and is under no obligation to segregate individual investors’ crypto assets
in exchange for the advertised staking returns. Coinbase accounts for investors’ crypto assets
through entries on its internal ledger system. The User Agreement provides: “Coinbase shall retain
control over electronic private keys associated with blockchain addresses operated by Coinbase,
including the blockchain addresses used to hold the Supported Digital Assets credited to
[customers’] Digital Asset Wallet.” The User Agreement continues: “Coinbase may use shared
blockchain addresses, controlled by Coinbase, to hold Supported Digital Assets for Digital Asset
Wallets on behalf of customers and/or held on behalf of Coinbase. Although we maintain separate
ledgers for users’ Coinbase Accounts and Coinbase accounts held by Coinbase for its own benefit,
Coinbase shall have no obligation to create a segregated blockchain address for your Supported
Digital Assets.”
350. In addition, Coinbase treats all crypto assets—tendered to it by investors and
segregated by stakeable asset—as fungible. As the User Agreement tells investors: “You agree that
all forms of the same Digital Asset that are held and made available across multiple blockchain
protocols may be treated as fungible and the equivalent of each other.”
351. Coinbase’s pooling of investors’ crypto assets, and the correspondingly larger
number of crypto assets to be staked at or with each of the five proof-of-stake protocols, increases
the likelihood that a blockchain network will select Coinbase to validate transactions, and thus
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enables Coinbase to more reliably earn rewards and distribute returns to investors. In fact, as
Coinbase disclosed on its website as recently as October 2022, the staking “reward rate can also be
influenced by factors including, but not limited to, validator performance” and the “amount
staked/stakers”—not just the “rates set by the network.”
352. As disclosed to investors, Coinbase distributes investor returns for each of the five
stakeable assets on a pro rata basis depending on the amount of crypto assets investors have staked.
Coinbase’s User Agreement tells investors: “Rewards will be credited to your account by taking into
account the amount of your principal and previously accrued rewards that remain staked with
Coinbase.” Likewise, during the Relevant Period, Coinbase stated on its website: “Rewards are
calculated based on the amount of cryptocurrency you hold in that particular balance. Meaning, the
more you hold of the cryptocurrency, the more Coinbase can stake on your behalf; and the more
potential rewards you receive.”
353. Second, the fortunes of investors for each of the five stakeable assets and of Coinbase
are also tied together. The revenue and profits that Coinbase stands to receive—the portion of the
staking rewards from each of the five protocols that Coinbase keeps as a commission—grows as
more investors participate in the Coinbase Staking Program.
354. Once Coinbase earns rewards from a particular protocol but before it credits rewards
to Staking Program investors’ accounts on a pro rata basis, it takes a commission for the services it
provides to investors. Coinbase takes a 35% commission on ADA and SOL staking rewards, and
25% for ETH, XTZ, and ATOM. Coinbase determines the amount or rate of the commissions it
takes, and during the Relevant Period Coinbase stated in its User Agreement that it had the ability to
change its commission rate “at its discretion and without notice.” On or about March 10, 2023,
Coinbase revised its User Agreement to tell investors: “Coinbase may change [its] published
commissions at any time, including after your assets have been staked.”
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355. In addition, as explained above, the larger the pool of assets for staking on each of
the five protocols, the higher the likelihood of obtaining rewards from a respective protocol, which
benefits all investors and Coinbase.
356. Further, because the commission Coinbase receives is profit-based, if Coinbase fails
to produce staking rewards on the invested crypto assets, neither Coinbase nor investors receive any
returns. In other words, investors pay Coinbase a commission from the staking rewards only if
Coinbase generates the marketed returns using investors’ funds.
iii. Coinbase Staking Program Investors Reasonably Expect to Profit from
Coinbase’s Efforts.
357. Investors in the Coinbase Staking Program reasonably expect to profit from
Coinbase’s efforts.
358. From the Staking Program’s inception, Coinbase has marketed it as an investment
opportunity, telling investors that its Staking Program offers an “easy” and “passive” way to put
their “assets to work” and “earn rewards for crypto that would otherwise be sitting around.”
359. As noted, Coinbase has promoted the Coinbase Staking Program—on its website,
blog, and social media pages, and in advertisements—as a means for investors to earn high, fixed
investment returns. And, based on those representations by Coinbase, investors have reasonably
expected to profit from participating in the Coinbase Staking Program.
360. Further, as described above, Coinbase has publicly touted its efforts to create the
advantages of the Coinbase Staking Program over staking independently, which according to
Coinbase can be “confusing, complicated, and costly.” For example, on its website (as recently as
early 2022), Coinbase told potential staking investors: “[S]taking your own crypto is a challenge for
most investors . To stake on your own requires running a node on your own hardware, syncing it to
the blockchain, and funding the node with enough cryptocurrency to meet minimum thresholds,
including providing a sizable deposit and bond. On Coinbase, we do all this for you .” (Emphases
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added.) Similarly, as Coinbase’s founder and CEO acknowledged in an interview with Bloomberg
on or about March 6, 2023, the “average person doesn’t really know what a private key is,” adding:
“crypto is still being treated like a growth asset.” According to Coinbase, the advantages of its
Staking Program, relative to investors staking on their own, include Coinbase taking steps to, among
other things, make an otherwise complex staking process “simple and seamless” and “easy and
secure.”
361. Investors are led by Coinbase to reasonably expect that they may obtain investment
returns generated by Coinbase’s efforts with respect to the Staking Program.
362. For example, during an analyst call on or about May 10, 2022, CGI’s CFO,
addressing questions concerning the Coinbase Staking Program, highlighted the extent to which
investor returns result from Coinbase’s efforts: “The model that we offer to our retail users is
effectively called delegated proof-of-stake, where we are staking on behalf of our users directly at
the protocol, we’re controlling those keys, we receive the reward and we pay out a portion of that
reward to our users and retain the balance as a commission for our services .” (Emphases added.)
363. Coinbase controls all Staking Program efforts. Coinbase (not investors) determines
how and when investors’ crypto assets will be staked with each of the five protocols—for example,
by implementing software systems it developed to stake investor assets, and also by using its liquidity
pools of staking-eligible assets during the Relevant Period.
364. Coinbase marshals its technical expertise and experience to stake investor crypto
assets and operate nodes on each of the five blockchain protocols to validate transactions and obtain
the rewards from which investors returns are paid. In doing so, Coinbase engages in additional
efforts to prevent malicious behavior or hacks, protect keys to staked assets, and increase server
uptime (the percentage of the time a validating node or server is online). This is consistent with
what Coinbase tells investors when promoting its Staking Program—that Coinbase, not investors,
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possesses the “fairly high level of technical knowledge” and “state-of-the-art encryption and
security” required to stake successfully and safely. For example, in its Form S-1 filed with the SEC
on February 25, 2021, CGI stated, “[o]ur experience allows us to … safely support new products
like staking.” Similarly, in or around January 2020, Coinbase posted a video to its YouTube channel
stating: “At Coinbase, we’re focused on offering more ways for customers to earn money with
crypto. Now, we’re going to make it easy and safe to earn staking rewards.”
365. Thus, customers who participate in the Staking Program understand that Coinbase’s
efforts are essential to the success or failure of the enterprise. Participants in the Staking Program,
on the other hand, are quintessentially passive investors who do not exert their own efforts.
366. Further, because Coinbase discloses that it retains a portion of the staking rewards as
commissions, investors understand that Coinbase has a strong financial incentive to engage in the
efforts required to make the enterprise successful.
367. Coinbase’s statements and actions, and the economic reality of the arrangements
with respect to the Coinbase Staking Program, have led and will continue to lead investors
reasonably to expect profits based on Coinbase undertaking significant and essential technical,
managerial, and entrepreneurial efforts.
F. Coinbase Has Failed to Register Its Offers and Sales of the Coinbase Staking
Program as It Applies to Each of the Five Stakeable Crypto Assets.
368. Coinbase has used interstate commerce to offer and sell the Coinbase Staking
Program by, among other things, engaging in general solicitation through its website and other
promotional materials, including Google advertisements and social media.
369. Coinbase has never had a registration statement filed or in effect with the SEC for its
offers and sales of the Coinbase Staking Program as it applies to each of the five stakeable crypto
assets. No exemption from registration applied or applies.
370. Coinbase’s and CGI’s public disclosures have contained selective or limited
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information about Coinbase’s Staking Program and have lacked full and detailed information. For
example, CGI does not disclose staking-related expenses in its financial statements or otherwise,
including the actual amount of Staking Program rewards paid to investors. Nor does Coinbase
disclose whether and to what extent: (i) it exercises discretion in determining whether and when to
stake investors’ crypto assets; (ii) retail customer assets are used by Coinbase to fund security
deposits required by any of the staking-eligible blockchain protocols; (iii) Coinbase, during the
Relevant Period, held any of its or investors’ crypto assets in reserve to provide liquidity for its
Staking Program, including to more quickly generate rewards payouts and/or process investors’
unstaking requests; and (iv) Coinbase and investors are receiving equal staking reward rates.
371. In its March 23, 2021 amended registration statement on Form S-1/A filed with the
SEC, CGI stated: “there is regulatory uncertainty regarding the status of our staking activities under
the U.S. federal securities laws. While we have implemented policies and procedures designed to
help monitor for and ensure compliance with existing and new laws and regulations, there can be no
assurance that we and our employees, contractors, and agents will not violate or otherwise fail to
comply with such laws and regulations.”
FIRST CLAIM FOR RELIEF
Violations of Section 5 of the Exchange Act
(Coinbase)
372. The Commission realleges and incorporates by reference the allegations in
paragraphs 1 through 371.
373. By engaging in the acts and conduct described in this Complaint, Coinbase met the
definition of “exchange” and, directly or indirectly, made use of the mails and the means and
instrumentalities of interstate commerce for the purpose of using any facility of an exchange within
or subject to the jurisdiction of the United States, to effect transactions in a security, or to report any
such transaction, without registering as a national securities exchange under Exchange Act Section 6
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[15 U.S.C. § 78f], and without being exempted from such registration.
374. By reason of the conduct described above, Coinbase, directly or indirectly, violated,
is violating, and, unless enjoined will continue to violate Exchange Act Section 5 [15 U.S.C. § 78e].
SECOND CLAIM FOR RELIEF
Violations of Section 15(a) of the Exchange Act
(Coinbase)
375. The Commission realleges and incorporates by reference the allegations in
paragraphs 1 through 371.
376. By engaging in the acts and conduct described in this Complaint, Coinbase, a person
other than a natural person under the Exchange Act, is a broker and made use of the mails and the
means and instrumentalities of interstate commerce to effect transactions in, or to induce or attempt
to induce the purchase or sale of, securities, without registering as a broker, and without being
exempted from such registration.
377. By reason of the conduct described above, Coinbase, directly or indirectly, violated,
is violating, and, unless enjoined, will continue to violate Exchange Act Section 15(a) [15 U.S.C.
§ 78o(a)].
THIRD CLAIM FOR RELIEF
Violations of Section 17A(b) of the Exchange Act
(Coinbase)
378. The Commission realleges and incorporates by reference the allegations in
paragraphs 1 through 371.
379. By engaging in the acts and conduct described in this Complaint, Coinbase, directly
or indirectly, made use of the mails and the means and instrumentalities of interstate commerce to
perform the functions of a clearing agency with respect to securities, without registering in
accordance to Section 17A(b) of the Exchange Act and without being exempted or excluded from
such registration.
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380. By reason of the conduct described above, Coinbase, directly or indirectly, violated,
is violating, and, unless enjoined, will continue to violate Exchange Act Section 17A(b) [15 U.S.C.
§ 78q-1(b)].
FOURTH CLAIM FOR RELIEF
Violations of Sections 5, 15(a), and 17A(b) of the Exchange Act
(CGI as Control Person of Coinbase)
381. The Commission realleges and incorporates by reference here the allegations in
paragraphs 1 through 371.
382. As alleged above, Coinbase has violated Exchange Act Sections 5, 15(a), and 17A(b)
[15 U.S.C. §§ 78e, 78o(a), and 78q-1(b)].
383. CGI is, and was during the Relevant Period, a control person of Coinbase for
purposes of Exchange Act Section 20(a) [15 U.S.C. § 78t(a)].
384. At all relevant times, CGI exercised power and control over its wholly-owned
subsidiary, Coinbase, including by managing and directing Coinbase, and by directing and
participating in the acts constituting Coinbase’s Exchange Act violations.
385. By reason of the foregoing, CGI is liable as a control person under Exchange Act
Section 20(a) [15 U.S.C. § 78t(a)] for Coinbase’s violations of Exchange Act Sections 5, 15(a), and
17A(b) [15 U.S.C. §§ 78e, 78o(a), and 78q-1(b)]. Therefore, CGI is jointly and severally liable with
and to the same extent as Coinbase for those Exchange Act violations.
FIFTH CLAIM FOR RELIEF
Violations of Sections 5(a) and 5(c) of the Securities Act
(Coinbase)
386. The Commission realleges and incorporates by reference the allegations in
paragraphs 1 through 371.
387. By virtue of the foregoing, Coinbase, through its offers and sales of the Coinbase
Staking Program, directly and indirectly: (a) without a registration statement in effect as to those
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securities, (1) made use of the means and instruments of transportation or communications in
interstate commerce and of the mails to sell securities through the use or medium of any prospectus
or otherwise, and (2) carried or caused to be carried through the mails or in interstate commerce, by
any means or instruments of transportation, securities for the purpose of sale or for delivery after
sale; and (b) made use of the means and instruments of transportation or communication in
interstate commerce and of the mails to offer to sell through the use or medium of a prospectus or
otherwise, securities as to which no registration statement had been filed.
388. By reason of the conduct described above, Coinbase, directly or indirectly violated, is
violating, and, unless enjoined will continue to violate Securities Act Sections 5(a) and 5(c) [15
U.S.C. §§ 77e(a) and (c)].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court enter a Final
Judgment:
I.
Permanently enjoining Defendants, and each of their respective agents, servants, employees,
attorneys and other persons in active concert or participation with any of them, from violating,
directly or indirectly, Sections 5, 15(a), and 17A(b) of the Exchange Act [15 U.S.C. §§ 78e, 78o(a),
and 78q-1(b)];
II.
Permanently enjoining Coinbase and each of its respective agents, servants, employees,
attorneys and other persons in active concert or participation with any of them, from violating,
directly or indirectly, Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and (c)];
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III.
Ordering Defendants to disgorge on a joint and several basis all ill-gotten gains resulting
from their Exchange Act violations, and ordering Coinbase to disgorge all ill-gotten gains resulting
from its Securities Act violations, with prejudgment interest thereon, pursuant to Sections 20(a),
21(d)(3), 21(d)(5) and 21(d)(7) of the Exchange Act [15 U.S.C. §§ 78u(a) and 78u(d)(3), (5) and (7)];
IV.
Ordering Defendants to pay civil money penalties pursuant to Section 21(d)(3) of the
Exchange Act [15 U.S.C. § 78u(d)(3)], and ordering Coinbase to pay civil money penalties pursuant
to Section 20(d) of the Securities Act [15 U.S.C § 77t(d)]; and
V.
Granting any other and further relief this Court may deem appropriate or necessary for the
benefit of investors pursuant to Section 21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)].
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JURY DEMAND
The Commission demands trial by jury.
Dated: New York, New York
June 6, 2023
/s Jorge G. Tenreiro
Jorge G. Tenreiro
Ladan F. Stewart
Nicholas C. Margida*
Peter A. Mancuso
Ben N. Kuruvilla
Elizabeth Goody
*Pro hac vice application forthcoming
SECURITIES AND EXCHANGE
COMMISSION
New York Regional Office
100 Pearl Street, Suite 20-100
New York, New York 10004
(212) 336-1100
Email: [email protected]
Attorneys for the Plaintiff
Of Counsel
Jason J. Burt
David L. Hirsch
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