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ARTICLE · 26 JUNE 2023

SEC Files Desist & Refrain Order Against Coinbase Alleging Failure To Qualify Staking Rewards Program

Allen Matkins Leck Gamble Mallory & Natsis LLP
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Yesterday, the California Department of Financial Protection & Innovation announced that it had issued a desist and refrain order against Coinbase, Inc.

United StatesTechnology
Keith P. Bishop
Keith P. Bishop

Yesterday, the California Department of Financial Protection & Innovation announced that it had issued a desist and refrain order against Coinbase, Inc. The order alleges that Coinbase's staking rewards program involved the the offer and sale of securities without qualification. The DFPI describes "staking" as follows:

Staking occurs when investors lock their crypto assets for a set period to help support the operation of a blockchain. In return, the investor is promised more cryptocurrency. Under Coinbase's staking rewards program, investors deposit crypto assets with Coinbase, which then facilitates the staking of these assets on the blockchain. The program is offered to the public and advertises a return of up to 6 percent on investments. Coinbase pools investors' crypto assets and employs a team of engineers to operate staking validator nodes to generate staking rewards. Coinbase takes a cut of those profits before sharing them with investors.

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