MADISON, Wis. – The Wisconsin Department of Financial Institutions (DFI) today announced that the agency has issued an administrative enforcement action against Coinbase Global, Inc. and Coinbase, Inc. for violations of securities laws and corresponding penalties in connection with Coinbase’s staking rewards program. The action is the result of a multi-state task force by ten state securities regulators led by California that also includes Alabama, Illinois, Kentucky, Maryland, New Jersey, North Carolina, Vermont, Washington, and Wisconsin.
“We are dedicated to safeguarding the investing public by enforcing Wisconsin’s securities laws,” said DFI Secretary-designee Cheryll Olson-Collins. “This action is another step towards ensuring that investors in digital asset products are protected.”
In the action issued on June 6, 2023, the DFI determined that Coinbase violated the state’s securities laws by offering its staking rewards program to Wisconsin residents without first obtaining the appropriate registration to offer or sell these securities. This action does not prohibit Coinbase from offering staking as a service, so long as it complies with Wisconsin securities 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.
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 crypto assets. 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 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 before sharing them with investors.
Coinbase’s nearly 3.5 million staking rewards program accounts nationwide 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, including the more than 44,000 accounts held by Wisconsin investors.
The DFI acknowledges the U.S. Securities and Exchange Commission’s concurrent efforts to enforce securities laws and appreciates the inter-agency communication regarding this action.
Wisconsin investors with concerns about a Coinbase staking offering in which they have invested, or about other securities offerings, should contact the DFI’s Division of Securities at DFISecurities@dfi.wisconsin.gov or (608) 266-2139 for more information. Before making any financial decisions, the DFI encourages investors to do their homework, ask questions, and check the registration status of the investment before investing their money.
News release link: https://dfi.wi.gov/Pages/About/NewsEvents/NewsReleases/20230609Coinbase.aspx