The United States Securities and Exchange Commission (SEC) has opened a new lawsuit involving the Coinbase exchange. This time, the SEC accuses the exchange of listing nine cryptocurrencies that are actually securities. The list is made up of the following cryptocurrencies: AMP (AMP); Rally (RLY); DerivaDEX (DDX); XYO(XYO); Rari Governance Token (RGT); LCX (LCX); Powerledger (POWR); DFX Finance (DFX); Kromatika (KROM). According to the SEC, a digital token can be classified as a security asset. For this, it is enough that this token meets the classification of ‘investment contract’, that is, if it constitutes an investment of money in a common company, with a reasonable expectation of profit derived from the efforts of others. In this sense, the nine tokens are classified as securities in the SEC’s view. And Coinbase, on the other hand, has no license to trade this type of product. Soon, the exchange listed the above nine tokens irregularly.
Coinbase manager accused of insider trading
The case, apparently, is linked to the arrest of the exchange’s former product manager, Ishan Waji, which took place on Thursday (21). According to the charges, Wahi used privileged information to obtain about R$5.7 million in illicit gains. Ishan Wahi, his brother Nikhil Wahi and his friend Sameer Ramani are accused of promoting a scheme involving precisely the listing of tokens. Ishan was warning Nikhil about which tokens Coinbase would list before the company disclosed the fact. Then Nikhil and Ramani would buy the tokens and make huge profits when Coinbase publicized their listings. “Prior to these announcements, which often resulted in a rise in asset prices, Nikhil Wahi and Ramani reportedly purchased at least 25 cryptocurrencies, nine of which were securities. Then they would typically sell right after the announcements, to make a profit,” the SEC said.
irregular listings
In addition to the insider trading on the part of the trio, Coinbase also committed irregularities according to the SEC. In the complaint, the Commission said that the nine tokens have “marks that define them as securities”. For example, tokens have ongoing representations from issuers and their management teams on the investment value of the tokens. The SEC also identified “management efforts that contribute to the value of tokens and the availability of secondary markets for trading.” “Thus, at all times relevant to the conduct alleged in this complaint, a reasonable investor in the nine cryptocurrency securities would continue to look to the efforts of the issuer and its promoters, including their future efforts, to increase the value of their investment,” he said. the SEC. Under securities law, tokens that rely on “managerial efforts for their value” fall under the SEC’s definition. This is the case of shares, for example, whose value arises from the ability of companies and their controllers to deliver value to shareholders. Therefore, the SEC has assessed that the tokens listed in the complaint have similar characteristics to companies and, as such, Coinbase cannot trade them without authorization.
Coinbase and Cryptocurrencies Respond
Also on Thursday, Coinbase contested the SEC’s decision via its blog. In the note, the company said it has filed a petition with the SEC to improve the “legislation on digital asset securities.” CEO Brian Armstrong said the company continues to improve its systems to detect fraud in listings and operations. Meanwhile, Kromatika Finance, the decentralized exchange (DEX) protocol behind the KROM token, was the only one of nine to take a stand on the stock. But the Kromatika team limited itself to saying that it has no involvement in cases of privileged information. “We have learned that our KROM token is mentioned in an SEC indictment for insider trading. This complaint is against a Coinbase employee. We, Kromatika Finance, are not involved in this case, nor are our employees,” the team said. According to Kromatika, Coinbase has not consulted its team for a possible listing of the token on the platform. Therefore, the protocol stated that it has no direct involvement in the token listing.
Lack of regulation creates gray area
Although the US does not have a law regulating cryptocurrencies, the SEC has been analyzing token offerings by companies since 2018. That year, the explosion of funding via the Initial Coin Offering (ICO) caught the attention of the municipality, which began to monitor companies. The SEC has not regulated this market, but has taken the position that almost all tokens sold in an ICO are unregistered securities. Therefore, the company began to close the siege on any and all offerings of digital assets. Currently, the SEC’s biggest lawsuit in this regard is against Ripple, the company that issues the XRP cryptocurrency. In the lawsuit filed against the company, the SEC is seeking $1.3 billion against the company for allegedly selling XRP without authorization. Ripple, for its part, denies that XRP is a security. Also Read: Cryptocurrency ‘Contagion’ Seems to Have Ended, Says Citi Also Read: Cryptocurrency Companies Unite to Launch Metaverse Interoperability
