In a complaint against a former Coinbase employee, the SEC disclosed which Coinbase assets it considered unregistered securities. In a court filing today, the SEC claimed that at least nine of the digital assets listed on Coinbase were unregistered securities.
- AMP (AMP)
- DerivaDEX [DDX]
- Rari Governance Token/RGT
- LCX (LCX)
- DFX Finance/DFX
“A digital token, or crypto asset, is a crypto security if they meet the definition of security which, according to the Securities Act, includes ‘investment contract’. This means that it represents an investment of money into a common enterprise with a reasonable expectation for profit derived from other efforts,” the SEC stated in a complaint today against a former Coinbase employee who was accused of insider trading.
Today, the SEC and Department of Justice announced charges against Ishan Wahi, former Coinbase Product Manager, and two other individuals. They are accused of operating an insider-trading operation that netted them more than $1.1million in illicit gains. Wahi is accused of tipping off his brother Nikhil Wahi, and Sameer Ramani about token-listing announcements to be made on the crypto exchange.
According to a press release, the SEC stated that Nikhil Wahi (or Ramani) allegedly bought at least 25 cryptocurrency assets, at most nine of them securities, before the announcements which often resulted in an increase of assets’ prices. They then typically sold them for a profit shortly after the announcements.
According to the Commission, the nine tokens have the “hallmarks” of security. This includes continuing representations by the issuers and their management about the tokens’ investment value and the managerial efforts that contributed to it.
The SEC stated that a reasonable investor would continue to follow the actions of the promoters and the issuer at all times, in order to increase their investment’s value.
Coinbase stated in a blog post that the company had submitted a petition to the SEC for improvements to “rulemaking regarding digital asset securities.”
The company stated that it had submitted a petition to the SEC asking them to create a working regulatory framework for digital assets securities. It should be based on formal procedures and a public notice and comment process rather than arbitrary enforcement or guidance.
Kromatika Finance, an Ethereum-based DEX aggregator, has responded to today’s SEC allegations of insider trading at Coinbase. The Commission also included the KROM token in its list of unregistered securities.
Kromatika tweeted, “It has been brought into our attention that our token $Krom was mentioned in a complaint regarding insider trading.” “This complaint is directed at an employee of Coinbase. Kromatika Finance and our employees are not involved in this matter.”
Kromatika claims that Coinbase did not consult its team about a possible listing. “We are confident that Coinbase will assist the authorities in clarifying the situation concerning the fault committed solely by this individual.”
So far, the relationship between the SEC and crypto industry has been complicated but most hostile.
The Commission has been regulating crypto since 2018 through enforcement actions. These enforcement actions have targeted startups that raised funds via initial coin offerings ( IICOs). The SEC is arguing that nearly every Ethereum-based token sold during an ICO is unregistered security. The Commission is currently involved in a $1.3 Billion lawsuit against crypto payments company Ripple for its sale of XRP.
The SEC has stated in the past that Bitcoin (BTC), and Ethereum(ETH) are not securities. However, the current Chairman Gary Gensler is less open to the possibility. He told CNBC last month that Bitcoin was not a security and avoided questions regarding Ethereum.
It is not clear if the SEC will pursue Coinbase for listing nine unregistered securities. However, the Commission threatened the crypto exchange last year which resulted in the company dropping the interest-earning Lend product.