NEWARK — The New Jersey Office of the Attorney General and the Division of Consumer Affairs announced that the Bureau of Securities (the “Bureau”) today issued a Summary Cease and Desist Order against Coinbase, Inc. for violations of the Securities Law and corresponding penalties in connection with Coinbase’s crypto staking offerings. The Summary Order assesses a $5 million penalty against Coinbase for the sale of unregistered securities.
The Bureau determined that Coinbase violated the Securities Law by offering unregistered securities through its staking offerings to New Jersey residents without first registering these securities. This action does not prohibit Coinbase from offering staking securities, so long as it complies with New Jersey law. The purpose of registering an offering with the Bureau before the 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 staking securities.
Staking occurs when investors lock their crypto assets for a set period to help support the operation of blockchain transaction validations. In return, the investor is promised more cryptocurrency. Under Coinbase’s staking offerings, investors deposit crypto assets with Coinbase, which then facilitates the staking of those assets on a particular blockchain. The program is offered to the general public and Coinbase advertises a return of up to 10% on investments. Coinbase pools investors’ crypto assets and employs a team of engineers to operate staking validator nodes, or contracts with third-party validators, to generate staking rewards. Coinbase takes a cut of those profits before sharing them with investors.
“The cryptocurrency securities market is not a free-for-all where companies can make up their own rules,” said Shirley Emehelu, Executive Assistant Attorney General. “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.”
“The rules are clear. Anyone selling securities in New Jersey must register and comply with the State’s Securities Law,” said Cari Fais, Acting Director of the Division of Consumer Affairs. “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 Bureau protects New Jersey investors by enforcing the State’s Securities Law,” said Acting Bureau Chief Amy Kopleton. “This action is another step toward ensuring that investors in crypto asset products are also offered that protection.”
Coinbase’s staking securities, which had over 3.5 million investors nationwide as of March 29, 2023, are not insured by the Federal Deposit Insurance Corporation or Securities Investor Protection Corporation. There is no protection from loss for any of the investors in these staking securities, including the approximately 145,270 New Jersey investors as of March 29, 2023. Investors are always encouraged to contact the Bureau to confirm the registration status of staking securities, or any other security, before investing their money.
The action is the result of a multi-state task force investigation by state securities regulators led by California that also includes several other states. The New Jersey Bureau’s investigation was handled by Investigator Delfin Rodriguez. The Bureau is represented by Deputy Attorney General Evan A. Showell.
The Bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. The Bureau encourages investors to “Check Before You Invest” by obtaining information, including the registration status and disciplinary history, of any financial professional doing business in or from New Jersey. Investors should contact the Bureau toll-free within New Jersey at 1-866-I-Invest (1-866-446-8378) or from outside New Jersey at (973) 504-3600, or by visiting the Bureau’s website at www.NJSecurities.gov. Investors can also contact the Bureau for assistance, or to raise issues or complaints about New Jersey-based financial professionals or investments.