Coinbase, one of the largest exchange’s in the U.S, is on the radar of the Securities and Exchange Commission (SEC) after the regulatory announced charges of inside trading against a former Coinbase employee on Thursday, July 21st.
The official court filing further alleged that Coinbase had listed and traded nine digital assets that should be considered as unregistered securities, according to the regulator. Despite identifying the assets, the SEC has not pressed charges against the exchange or any of the issuers.
Enabled Trading of Unregistered Securities
According to documentation from the SEC, the exchange disregarded federal securities law by enabling trading of the following digital assets as unregistered securities: AMP (AMP), Rally Network (RLY), DerivaDEX (DDX), XYO (XYO), Rari Governance Token (RGT), LCX (LCX), Powerledger (POWR), DFX Finance (DFX), and Kromatika (KROM).
“These crypto assets were investment contracts; they were offered and sold to investors who made an investment of money in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others”, the document stated.
The SEC further allege that all nine crypto assets possessed other hallmarks fitting the definition of “security”, which refers to a financial instrument that holds some type of monetary value.
According to the regulator, they were all issued in order to raise money “that would be used for the issuer’s business”. Moreover, they were sold and promoted as instruments with potential to increase in value. Finally, all nine token issuers encouraged investment based on their promises to expand future efforts to improve tokens’ value.
The Department of Justice (DOJ) reviewed the complaint and elected not to file securities fraud charges against any of the the exchange, which enabled the listings, or the issuers themselves.
Coinbase Denies Accusations
In response, Coinbase published a blog post on Friday 22nd, in which they asserted that none of the mentioned tokens were securities, and totally disagreeing with the SEC on its decision to file securities fraud charges.
“Coinbase has a rigorous process to analyze and review each digital asset before making it available on our exchange — a process that the SEC itself has reviewed,” stated Paul Grewal, Chief Legal Officer of Coinbase. “Such a process typically includes analyzing whether the asset could be considered a security, as well as regulatory compliance”.
Coinbase’s CLO further noted a critical problem that the SEC’s charges put a spotlight on. According to him, the U.S. still lacks a clear, applicable regulatory framework for digital asset securities. However, Grewal opines that instead of crafting tailored rules, the SEC applies enforcement actions to try to force digital assets into its jurisdiction.
The exchange has since filed a petition with the SEC, calling for clear rules that define how federal securities laws apply to digital assets.
Involved in Lawsuits
The relationship between the crypto industry and the SEC has long been filled with complications. Back in December 2020, the commission filed a lawsuit against Ripple Labs and two of its executives, claiming that the company had raised over $1.3 billion from selling XRP as an unregistered security.
Ripple Labs denied the allegations and entered into a drawn-out legal battle, the lawsuit has become a landmark case in the cryptocurrency space, which, if lost, could set a regulatory precedent for the entire industry.
Why You Should Care
U.S. crypto players say the lack of clear regulatory rules is one of the biggest obstacles to crypto space’s development. Moreover, the slow decision-making process could see foreign crypto markets soar ahead of that of the U.S.
Just weeks ago the European Union (EU) reached an consensus on its Markets in Crypto Assets (MiCA) regulation, creating the most comprehensive global regulatory framework for digital assets.
Coinbase Expands into Europe in Spite of U.S. Layoffs
Ripple Reveals Plans to Relocate if It Loses SEC Case – Sets up Shop in Canada
SEC Vs Ripple: Hinman Related Hearing Suicidal for SEC?