Coinbase (COIN) stock took a hit Tuesday after the company was sued by the U.S. Securities and Exchange Commission (SEC) on allegations of violating federal securities law. The shares slid as much as 20% at the open before retracing some of the loss to trade 15% lower at $47.10 as of 10:07 a.m. in New York (14:07 UTC), according to TradingView prices. Major shareholders of Coinbase include The Vanguard Group, Cathie Wood’s ARK Invest, Nikko Asset Management, Fidelity, and BlackRock.
The SEC said Coinbase was operating as an unregistered broker, exchange, and clearing agency simultaneously, accusing it of soliciting customers, handling orders, allowing for bids, and acting as an intermediary all at once. Edward Moya, a senior markets analyst at Oanda, commented that the legal fight will be long and costly for Coinbase, but it might be difficult to argue and prove that they didn’t commingle and unlawfully offer exchange, broker-dealer, and clearinghouse functions.
The lawsuit comes a day after the SEC sued Binance, the biggest crypto exchange globally, for similar reasons. Coinbase shares lost 9% on Monday, while brokerage platform Robinhood Markets (HOOD) also fell, losing 3%; the company reported first-quarter cryptocurrency trading revenue of $38 million. Both Binance and Coinbase had received warnings earlier this year in the form of a Wells Notice. Coinbase responded to the notice in April, refuting the SEC’s allegations.