Coinbase slams SEC for insider trading

Coinbase’s sign in Times Square, New York, during the company’s initial public offering on Nasdaq on April 14, 2021.

Robert Nickelsberg | Getty Images

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

Former Coinbase Product Manager was charged on Thursday, along with two others, in wire fraud in connection with an alleged insider trading scheme using cryptocurrencies. The case is the first of its kind.

The U.S. Attorney’s Office accused these individuals of conspiracy to profit from the listing of new tokens on the Coinbase platform before they were announced publicly.

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

Coinbase General Counsel Paul Grewal denied the allegations on Thursday at Blog post titled “Coinbase does not list securities. End of history.”

“Seven of the nine assets included in the Securities and Exchange Commission are listed on the Coinbase platform,” Grewal said in a blog post. “None of these assets are securities.”

“Coinbase has a rigorous process for reviewing and verifying each digital asset before it is available on our exchange — a process that the SEC itself has verified.”

The question of whether certain cryptocurrencies should be considered securities is a contentious issue that has troubled both regulators and crypto companies.

Ripple, the San Francisco-based blockchain firm, is currently pursuing legal action from the SEC, which claims that XRP, the cryptocurrency it is closely associated with, should be treated as a security.

This goes back to a famous Supreme Court case known as the Howey test, in which an asset is considered a security if it meets certain criteria. According to the SEC, a security is defined as “the investment of money in an ordinary enterprise with a reasonable expectation of profit derived from the efforts of others.”

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

The listing process for securities, such as company shares, involves strict disclosure and registration requirements. Cryptocurrencies, by contrast, are not regulated and therefore not subject to the same level of scrutiny.

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

However, the SEC believes the company is listing non-regulated securities on its platform, which Coinbase denies.

Caroline Pham, commissioner of the Commodity Futures Trading Commission, also weighed in on the case on Thursday, calling the SEC’s allegations of securities fraud “a prime example of ‘regulation by enforcement’.” The CFTC controls foreign exchange trading.

“The Securities and Exchange Commission allegations could have far-reaching implications beyond this single case, highlighting the importance and urgency of regulators working together,” Fama said in a statement. “The clarity of regulation comes from being out in the open, not in the dark.”

Coinbase’s Grewal agreed with Pham’s assessment.

“Instead of developing individual rules in an inclusive and transparent manner, the SEC is relying on such one-off enforcement actions to try to bring all digital assets under its jurisdiction, even those assets that are not securities,” he said in the report. Blog post.