Coinbase blasts SEC over insider trading case

Coinbase blasts SEC over insider trading case

Coinbase signage in Times Square in New York during the company’s IPO on Nasdaq on April 14, 2021.

Robert Nickelsberg | Getty Images

Coinbase has denied claims by the Securities and Exchange Commission that it is offering unregistered securities following allegations of fraud against a former company employee.

A former Coinbase product manager was charged Thursday along with two others on wire fraud related to a cryptocurrency insider trading scheme. The case is the first of its kind.

US prosecutors accused the individuals of planning to profit from the listing of new tokens on the Coinbase platform before they were publicly announced.

In a separate complaint filed Thursday, the SEC said nine of the 25 tokens allegedly traded under the system were securities.

Coinbase Chief Legal Officer Paul Grewal dismissed the claims Thursday in a blog post titled “Coinbase Does Not List Securities. End of story”.

“Seven of the nine assets included in the SEC’s fees are listed on Coinbase’s platform,” Grewal said in the blog post. “None of these assets are securities.”

“Coinbase has a rigorous process to analyze and review each digital asset before it is made available on our exchange – a process that the SEC has itself reviewed.”

Whether some cryptocurrencies should be considered securities is a contentious issue that has confused both regulators and crypto firms alike.

Ripple, a San Francisco-based blockchain company, is currently fighting a lawsuit from the SEC alleging that XRP, a cryptocurrency with which it is closely related, should be treated as collateral.

It dates back to a notable Supreme Court case known as the Howey test, which considers an asset a security if it meets certain criteria. According to the SEC, a security is defined as “an investment of money in a common enterprise with a reasonable expectation of profit from the efforts of others.”

The SEC’s position is significant as it means Coinbase could be forced to classify some of the cryptocurrencies it offers as regulated financial instruments.

The process of listing securities such as B. shares in a company, involves strict disclosure and registration requirements. Cryptocurrencies, on the other hand, are unregulated and are therefore not subject to the same scrutiny.

Coinbase is known to be more conservative with its token listing framework than some other exchanges. For example, both Binance and FTX offer more than 300 coins, while Coinbase lists just over 200, according to CoinGecko data.

Still, the SEC believes the company hosts unregulated securities on its platform, a claim Coinbase denies.

Commodity Futures Trading Commission Commissioner Caroline Pham also commented on the case Thursday, calling the SEC’s securities fraud charges “a striking example of ‘regulation by enforcement’.” The CFTC oversees foreign exchange trading.

“The SEC’s allegations could have far-reaching implications beyond this isolated case and underscore the importance and urgency of regulators working together,” Pham said in a statement. “Regulatory clarity comes from being open, not in the dark.”

Coinbase’s Grewal agreed with Pham’s assessment.

“Rather than creating bespoke rules in an inclusive and transparent manner, the SEC relies on this type of one-time enforcement action to try to bring all digital assets under its jurisdiction, even those assets that aren’t securities,” he said.

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