Coinbase’s Stock Nosedives Following SEC’s Legal Action Against the Firm

Shares of Coinbase (COIN), a cryptocurrency exchange, fell on Tuesday after it was sued by the U.S. Securities and Exchange Commission for violating state securities laws.

TradingView prices show shares down as much as 20 percent on the open before recouping some of their losses and down 15 percent at 10:07 New York (14:07 UTC) at $47.10 were traded. The Vanguard Group is a major shareholder in Coinbase, along with Nikko Asset Management and BlackRock, Fidelity, Nikko Invest, and Cathie Wood’s ARK Invest.

Ark Invest added 301,437 additional shares of Coinbase (ARKK) to its ARK Innovation ETF in March. According to website ARK Invest, there were about 11 million shares in each fund as of Monday.

The SEC claimed that Coinbase simultaneously acted as a broker, exchange, and clearing house, and accused them of simultaneously soliciting clients, processing orders, allowing bids, and acting as an intermediary.

Edward Moya is Senior Market Analyst at Oanda. He said the Coinbase litigation will be costly and lengthy. It can be difficult to prove that they have not unlawfully combined exchange, broker-dealer and clearinghouse functions.

The SEC filed the lawsuit a day earlier after Binance, the world’s largest crypto exchange, was sued on similar grounds. Coinbase shares fell 9% on Monday. Robinhood Markets, a brokerage platform that offers cryptocurrency trading, was also down 3%. The company reported revenue of $38 million in the first quarter.

Both Binance and Coinbase received warnings in the form of a Wells note earlier this year. Coinbase responded to the SEC’s notice in April, denying its allegations.

CORRECTION (June 6, 14:26 UTC): Cathie Wood is spelled correctly throughout.

UPDATE (June 6, 14:37 UTC): Add Robinhood shares to penultimate paragraph.