Coinbase falls 10% after the SEC sues rival crypto exchange Binance for violating securities law

• Coinbase stock fell 10% on Monday after the SEC sued Binance for violating securities rules.
• Coinbase is currently under SEC investigation and could face an enforcement action tied to its listings of potential unregistered securities.
• Bitcoin fell 5% following the SEC's announcement that it was suing Binance.

Coinbase stock fell 10% on Monday after the US Securities and Exchange Commission sued rival crypto exchange Binance and its founder Changpeng Zhao.

The SEC accused Binance of breaking the law by offering unregistered securities to the general public, including its BNB token and BUSD stable coin. The lawsuit also alleged that a staking service offered by Binance also violated securities laws.

Other charges levied against Binance by the SEC included the company's failure to register as a broker as well as its failure to register as an exchange. Finally, the SEC alleged that Binance comingled customer funds, which is what ultimately led to the downfall of Sam Bankman Fried's FTX crypto trading platform last year.

The SEC lawsuit sent shockwaves through the crypto sector, sending shares of Coinbase lower as well as popular crypto coins like bitcoin and ether, which both fell as much as 5%.

For Coinbase, the lawsuit against Binance hits close to home because the popular US crypto exchange is currently being investigated by the SEC and received a Wells notice from the agency earlier this year, which typically serves as a warning that they could ultimately be charged for violating securities laws.

The SEC's main point to crypto firms is that you can't skirt securities laws by offering cryptocurrencies to the public without registering them. The debate is whether cryptocurrencies are in fact securities, which the SEC has argued yes, they are, while crypto firms like Coinbase have argued the opposite.

Coinbase offers its own stablecoin that is listed on its exchange and was not registered with the SEC, and the company also offers its own staking platform, two things the SEC just sued Binance for offering.

While Coinbase has yet to be sued by the SEC, price action in Coinbase's stock following the Binance lawsuit suggest investors are worried about possible enforcement action following the regulator's move against Binance.