Germany, Coinbase

Germany’s BaFin admonishes Coinbase over its business organization

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Digital asset exchange Coinbase (NASDAQ: COIN) has been censured in Germany following an annual audit that raised questions over its corporate structure.

On Tuesday, BaFin, the German federal financial supervisory authority, announced it had ordered Coinbase to “ensure proper business organization” after an “audit of the annual financial statements revealed organizational deficiencies at the institute.”

BaFin did not give details about what exactly sparked the censure, but the shoddy organizational structure has been used by digital asset companies to duck regulators in the past. A Reuters investigation recently confirmed that Binance tried to evade regulatory scrutiny by setting up strawman entities in the United States, for example.

This public dressing down from BaFin comes hot on the heels of a ‘crypto winter’ that resulted in Coinbase reporting a revenue loss of $545 million in the third quarter, down more than 50% from the previous year, and a loss earnings of $2.43 per share, adjusted.

BaFin’s decision to demand organizational change from Coinbase is the result of a May 2022 audit by Deloitte, which judged the exchange’s financials were presented accurately and fairly but reported flaws in the company’s set-up to the German regulator.

The embattled exchange is also the subject of an SEC investigation over whether it allowed users to trade digital assets that count as unregistered securities, as well as a lawsuit filed by Dr. Craig Wright over Coinbase passing off BTC as “fake Bitcoin” assets that do not conform to the system described in the white paper; the former could result in criminal charges and the latter a potential payout in the hundreds of millions.

Coinbase is the largest digital asset exchange in the U.S. by trading volume. In recent years, it has expanded its activities in Europe, with Italy being the most recent country to register the exchange.

However, it clearly hasn’t been smooth sailing of late; since April 2021, when it began trading on NASDAQ, Coinbase has seen shares fall almost 80%, and in June, it was forced to let go of 1100 employees.

Digital assets have had a tough year across the board, and Coinbase’s latest blow at the hands of BaFin could be a sign of further pitfalls to come, with the industry under ever-increasing scrutiny from global regulators to clear up some of its more opaque structures and practices, protect investors, and weed out money laundering.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

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