The New Jersey Office of the Attorney General and the Division of Consumer Affairs announced that the Bureau of Securities today issued a Summary Cease and Desist Order against Coinbase, Inc. for violations of the Securities Law and corresponding penalties in connection with Coinbase’s crypto staking offerings. The Summary Order assesses a $5 million penalty against Coinbase for the sale of unregistered securities.

The Bureau determined that Coinbase violated the Securities Law by offering unregistered securities through its staking offerings to New Jersey residents without first registering these securities. This action does not prohibit Coinbase from offering staking securities, so long as it complies with New Jersey law.

The purpose of registering an offering with the Bureau before the 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 staking securities.

Under Coinbase’s staking offerings, investors deposit crypto assets with Coinbase, which then facilitates the staking of those assets on a particular blockchain. The program is offered to the general public and Coinbase advertises a return of up to 10% on investments. Coinbase pools investors’ crypto assets and employs a team of engineers to operate staking validator nodes, or contracts with third-party validators, to generate staking rewards. Coinbase takes a cut of those profits before sharing them with investors.

Coinbase’s staking securities, which had over 3.5 million investors nationwide as of March 29, 2023, are not insured by the Federal Deposit Insurance Corporation or Securities Investor Protection Corporation. There is no protection from loss for any of the investors in these staking securities, including the approximately 145,270 New Jersey investors as of March 29, 2023. Investors are always encouraged to contact the Bureau to confirm the registration status of staking securities, or any other security, before investing their money.

Earlier today, the Securities and Exchange Commission (SEC) charged Coinbase with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency.