Nine digital assets featured on the cryptocurrency exchange Coinbase are unregistered securities, according to a new court filing from the SEC.
The SEC disclosed which assets on Coinbase it regards as unregistered securities in a complaint against a former Coinbase employee who is charged with insider trading.
The Commission stated that the nine tokens have all of the “hallmarks of the definition of a security,” including ongoing representations by the issuers and their management teams regarding the tokens’ investment potential, the managerial efforts that have contributed to the tokens’ value, and the existence of secondary markets for trading the tokens.
“Thus, at all times relevant to the conduct alleged in this complaint, a reasonable investor in the nine crypto asset 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,” the SEC said.
AMP (AMP), Rally (RLY), DerivaDEX (DDX), XYO (XYO), Rari Governance Token (RGT), LCX (LCX), Powerledger (POWR), DFX Finance (DFX), and Kromatika (KROM) are the nine assets in controversy. Notably, none of them are among the top 50 most valuable cryptocurrencies.
“A digital token or crypto asset is a crypto asset security if it meets the definition of a security, which the Securities Act defines to include ‘investment contract,’ i.e., if it constitutes an investment of money in a common enterprise, with a reasonable expectation of profit derived from the efforts of others,” the SEC wrote in a complaint filed today against a former Coinbase employee accused of insider trading.
Ishan Wahi, a former product manager at Coinbase, and two other people have been charged by the SEC and the Department of Justice with operating an insider trading scam that netted them more than $1.1 million in ill-gotten gains. Wahi allegedly informed his buddy Sameer Ramani and his brother Nikhil Wahi about impending announcements regarding token listings on the cryptocurrency market.
“Ahead of those announcements, which usually resulted in an increase in the assets’ prices, Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them shortly after the announcements for a profit,” the SEC said in a press release.
Coinbase disagreed with the SEC by explicitly declaring that the tokens are not securities. The allegations were referred to as “an unfortunate distraction” from the essential “law enforcement action” in the exchange.
Coinbase announced in a blog post on Thursday that it had submitted a petition to the SEC asking for better “rulemaking on digital asset securities.”
Although the SEC threatened to sue the cryptocurrency exchange last year, which led to the company dropping its interest-earning Lend product, it is currently unclear whether the Commission intends to pursue charges against Coinbase over its listing of nine, and possibly more, unregistered securities.