Palmetto State News

(COLUMBIA, S.C.) – Attorney General Alan Wilson announced On June 06, that his office’s Securities Division has taken action against Coinbase Global, Inc. and Coinbase, Inc. for allegedly breaking South Carolina law by selling unregistered securities to South Carolina investors. The office took action because of Coinbase’s crypto-asset staking rewards program, which the state alleges violates the South Carolina Securities Act.

Under Coinbase’s staking rewards program, investors deposit crypto assets with Coinbase, which then facilitates the staking of these assets on a blockchain. The program is offered to the general public and advertises a return of up to 6% on investments.  Coinbase pools investors’ crypto assets and employs a team to operate staking validator nodes to generate staking rewards. Coinbase takes a cut of those profits as commission for its services before sharing the remainder with investors.

As of March 29, 2023, Coinbase had nearly 3.5 million staking rewards program accounts nationwide with a total asset value of approximately $4.8 billion, of which more than 43,000 accounts were held by South Carolina investors with a total asset value of approximately $37.7 million.

Coinbase’s staking rewards program accounts are not insured by the Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC).  There is no protection from loss for any of these accounts. 

This action does not prohibit Coinbase from offering staking as a service, so long as it complies with South Carolina’s laws. The purpose of registering an offer and sale of securities, in part, is to ensure that investors receive all material information needed to evaluate the risks of participating in an investment, including in a staking rewards program.

This regulatory action is the result of an investigation by a multi-state task force of ten state securities regulators, including Alabama, California, Illinois, Kentucky, Maryland, New Jersey, South Carolina, Vermont, Washington, and Wisconsin. The U.S. Securities and Exchange Commission (the “SEC”) also announced today that it filed an action against Coinbase. The Division acknowledges the SEC’s concurrent efforts to enforce securities laws and appreciates the inter-agency communication regarding this action.

The Securities Division can be reached by calling 803-734-9916 or by emailing agsecurities@scag.gov.  Investors can submit a complaint or learn more about the Securities Division by visiting the Attorney General’s Office website at https://www.scag.gov/inside-the-office/legal-services-division/securities/.

You can read the Cease and Desist Order here.

Original source can be found here