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Coinbase Reaches $100 Million Settlement With New York Regulator

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Brian Armstrong-led cryptocurrency exchange Coinbase has reached a $100 million settlement with New York’s Department of Financial Services (DFS), according to statements released by both parties. 

Following the news, the Coinbase stock saw a considerable jump, rising over 12%. 

Coinbase Settles New York State Investigation 

Cryptocurrency exchange Coinbase has announced that it has reached a $100 million settlement with the New York Department of Financial Services (DFS). The exchange and the regulator announced the news through separate statements released on Wednesday. Under the terms of the settlement, Coinbase will pay a $50 million fine, and invest a further $50 million towards compliance efforts, and look to block any potential criminal or malicious actor from using the exchange. Coinbase will also be required to work with a third-party monitor. 

“This agreement includes a $50 million penalty and a separate commitment from Coinbase to invest $50 million in our compliance program over two years.”

Close Scrutiny Of Coinbase

According to regulators from New York’s Department of Financial Services, Coinbase had long-standing failures in its anti-money laundering program. The DFS also found that Coinbase treated its onboarding requirements for customers as a simple “check-the-box” and had not carried out sufficient background checks on its users. In a statement, Coinbase’s Chief Legal Officer, Paul Grewal, stated that the firm had taken substantial measures to address “historical shortcomings.”

The enforcement action by authorities comes as state and federal regulators have ramped up their efforts following the spectacular collapse of the Sam Bankman-Fried-led FTX exchange, which was one of the largest cryptocurrency exchanges in the world. 

Significant Compliance Shortcomings 

According to regulators, shortcomings in Coinbase’s compliance processes led to considerable suspicious and unlawful conduct facilitated through the platform. Regulators cited a case where one Coinbase customer was charged with crimes related to child sexual abuse but was not flagged by the Coinbase system when they joined the platform. Regulators added that the user in question could access the exchange and engage in “suspicious transactions potentially associated with illicit activity without detection.” 

Coinbase eventually identified the user, closed the account, and reported the user to law enforcement authorities. On its part, Coinbase has committed to identifying and rectifying issues that regulators have flagged. Furthermore, Coinbase management has consistently pushed for broader and clearer regulations of the crypto industry. In an op-ed, the Coinbase CEO wrote, 

“Despite the prevailing notion that crypto companies don’t want to be regulated, many — if not most — companies have been working with policymakers for years.”

Coinbase Stock Jumps 

Following the settlement news, the Coinbase stock price jumped nearly 12%. The platform is the only publicly traded cryptocurrency exchange in the United States and had disclosed the probe in its 2021 10-K filing with the SEC. Additionally, several other major players, such as the Grayscale Bitcoin Trust, rely on Coinbase for the custody of their assets in cold storage. Coinbase holds licenses across the United States and globally.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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