On Thursday (July 21), the U.S. Securities and Exchange Commission (SEC) filed a complaint at U.S. District Court for the Western District of Washington against defendants Ishan Wahi, Nikhil Wahi, and Sameer Ramani.

As Tim Copeland reported for the The Block earlier today, “this case involves insider trading in certain crypto asset securities that Coinbase Global, Inc. (‘Coinbase’) announced would be “listed,” or made available to trade, on its crypto asset trading platform.”

The complaint went on to say:

From at least June 2021 through April 2022, Ishan Wahi (‘Ishan’), a manager in Coinbase’s Assets and Investing Products group, repeatedly tipped material, nonpublic information about the timing and content of Coinbase’s ‘listing announcements’ – in which Coinbase announced that crypto assets would be listed on its trading platform – to his brother Nikhil Wahi (‘Nikhil’) as well as his close friend Sameer Ramani (‘Ramani’). Nikhil and Ramani used this information to trade ahead of multiple listing announcements, earning at least $1.1 million in illicit profits.

The nine cryptoassets that the SEC alleges are securities are $AMP, $RLY, $DDX, $XYO, $RGT, $LCX, $POWR, $DFX, and $KROM.

Why are they securities?

Here is the SEC’s explanation:

As alleged in greater detail below, each of the nine companies that offered these crypto asset securities and their promoters further emphasized, among other things, their efforts to get their crypto asset securities listed on secondary trading platforms, and the critical role that executives and others at the company played in turning the company into a success, thereby increasing the value of the crypto asset security. In other words, each of the nine companies invited people to invest on the promise that it would expend future efforts to improve the value of their investment.

These hallmarks of the definition of a security continue to be true for the nine crypto asset securities that are the subject of the trading in this complaint, including continuing representations by issuers and their management teams regarding the investment value of the tokens, the managerial efforts that contribute to the tokens’ value, and the availability 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 “demands trial by jury.”

Coinbase’s response was a blog post titled “The Crypto Securities Market is Waiting to be Unlocked. But First We Need Workable Rules.”

In this blog post, Coinbase petitions the SEC to “start a process where the public and key stakeholders can transparently provide input into the agency’s work on crypto.” Coinbase says that it hopes “the petition will launch a broader conversation where members of Congress — many of whom also see the need for the regulations to evolve — will provide their views.” It also mentions that “doing this right will help to avoid one-off, arbitrary decisions that provide little clarity or guidance to the industry, and will instead result in a clear set of comprehensive rules, much like important jurisdictions around the world are working toward.”

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