Coinbase slams SEC over insider trading case

Coinbase slams SEC over insider trading case

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

Robert Nickelberg | Getty Images

Coinbase has pushed back against claims by the Securities and Exchange Commission that it offers unregistered securities, following accusations of fraud against a former employee of the company.

A former Coinbase product manager was charged Thursday, along with two others, with wire fraud in connection with an alleged insider trading scheme involving cryptocurrencies. The case is the first of its kind.

US prosecutors accused the individuals of conspiring 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 in the scheme were securities.

Coinbase Chief Legal Officer Paul Grewal denied the allegations Thursday in a blog post titled “Coinbase Does Not List Securities. End of Story.”

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

“Coinbase has a rigorous process for analyzing and reviewing each digital asset before making it available on our exchange – a process that the SEC itself has reviewed.”

Whether certain cryptocurrencies should be considered securities is a contentious issue that has troubled both regulators and crypto firms.

Ripple, a San Francisco-based blockchain company, is currently battling an SEC lawsuit that claims XRP, a cryptocurrency it is closely associated with, should be treated as security.

This goes back to a notable Supreme Court case known as the Howey test, which deems an asset as 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 important because it means Coinbase could be forced to classify some of the cryptocurrencies it offers as regulated financial instruments.

The process of registering securities, such as shares of a company, involves rigorous disclosure and registration requirements. Cryptocurrencies, on the other hand, are unregulated and therefore not subject to the same level of control.

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

Nonetheless, the SEC believes the company is hosting unregulated securities on its platform, a claim Coinbase denies.

Caroline Pham, commissioner of the Commodity Futures Trading Commission, also weighed in on the case on Thursday, calling the SEC’s securities fraud accusations a “stark example of ‘regulation by enforcement.'” The CFTC oversees operations change.

“The SEC’s allegations could have broad implications beyond this single case, underscoring how critical and urgent it is for regulators to work together,” Pham said in a statement. “Regulatory clarity comes from being out in the open, not in the dark.”

Coinbase’s Grewal agreed with Pham’s assessment.

“Instead of crafting bespoke rules in an inclusive and transparent manner, the SEC relies on these kinds of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even assets that are not titles,” he said in the blog post.

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