Coinbase is making a concerted effort to become a legitimate financial entity in the United States. It has purchased three separate traditional financial companies, each with its own pluses that could pave the way for the cryptocurrency exchange company to receive approval by the U.S. Securities and Exchange Commission (SEC). While it works with regulators to become \u201cbona fide,\u201d it still is pushing forward with several projects, including the recent release of its Coinbase Custody platform. To be able to offer the new custody service, Coinbase partnered with Electronic Transaction Clearing (ETC) and some are now wondering if that was a smart move given the company\u2019s checkered past. In announcing the official launch of Coinbase Custody, Coinbase boasted of the alliance, saying, \u201cCoinbase Custody leverages the expertise and systems of our partner Electronic Transaction Clearing (ETC). ETC is a SEC-registered broker-dealer and FINRA member subject to regulated financial reporting and independent audits.\u201d\u00a0 Unfortunately for Coinbase, though, it has now been discovered that ETC hasn\u2019t always played fairly with clients\u2019 money. Nathaniel Popper, a reporter with the New York Times, tweeted on Monday, \u201cCoinbase is setting up a new service to help big investors comfortably hold cryptocurrencies. Might not help that their partner on this, Electronic Transaction Clearing, has been charged by the SEC \u2018with repeatedly putting customer assets at risk.\u2019" https:\/\/twitter.com\/nathanielpopper\/status\/1013894819976888320 Coinbase first announced the creation of Coinbase Custody in December 2017. The plan was already well under way with ETC\u2019s involvement when, in March, the SEC slapped ETC on the wrist for some irregular practices. An investigation led by the SEC determined that ETC had \u201cillegally placed more than $25 million of customers\u2019 securities at risk in order to fund its own operations.\u201d In one case, $8 million deposited by a client was used by the firm to cover the margin requirements of a loan it held. ETC was also found to have used another $17 million from deposits as collateral to cover other loans. The SEC determined that the company had repeated the action \u201cnumerous times\u201d in 2015, as well. The practices were in violation of the SEC\u2019s Customer Protection Rule, which requires that currency custodians maintain physical possession of customers\u2019 assets at all times. Fortunately, the outcome of the actions was positive and no clients lost money. However, things could have certainly gone the other way, as has been seen time and time again. ETC was forced to pay an $80,000 fine, and did so without neither confirming nor denying any wrongdoing. The concern now is how this could impact institutional investments through Coinbase Custody. Investors are already a little skittish due to the market volatility, and the misuse of their funds\u2014or even the perception that it could happen\u2014won\u2019t sit well with them.