The New Jersey Office of the Attorney General and the Alabama Securities Commission took action against Coinbase on the same day the Securities and Exchange Commission (SEC) filed suit against the exchange.
The New Jersey Bureau of Securities issued a Summary Cease and Desist Order and a $5 million penalty against Coinbase for allegedly offering unregistered securities through its staking offerings to New Jersey residents.
Alabama Securities Commission (ASC) issued a show cause order to Coinbase, providing the company with 28 days to justify why it should be allowed to continue operating in the state.
Staking involves investors locking their crypto assets for a certain period to support the operation of a blockchain, with the promise of more cryptocurrency.
Coinbase has promoted a return of up to 10% on investments in New Jersey and up to 6% in Alabama through its staking rewards program.
Investor protection focus
New Jersey and Alabama’s actions focus on protecting state investors, with over 33,000 Coinbase accounts held by Alabama investors and approximately 145,270 in New Jersey. “These actions are another step toward ensuring that investors in crypto asset products are offered the same protections under our laws and are fully aware of the risks involved in these investments,” said Amanda Senn, ASC Director.
Coinbase’s staking rewards program accounts are not insured by the Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC). This leaves investors with no protection from loss, the officials note.
Shirley Emehelu, Executive Assistant Attorney General, New Jersey, emphasized that “the cryptocurrency securities market is not a free-for-all where companies can make up their own rules.”
The company has experienced significant backlash recently, with shares falling 22% in premarket trading on Tuesday. The actions by New Jersey and Alabama follow the SEC’s lawsuit against Coinbase in a New York federal court, accusing the company of acting as an unregistered broker and exchange.
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