The SEC has filed a case against a former Coinbase product manager, his brother, and one of his close associates, alleging that the trio raked $1.5 million in profits from insider trading.
In a separate complaint filed on 21st July, the apex regulator said that nine of the 25 tokens allegedly traded in the scheme were securities, sparking a huge debate online.
Ian McGinley who works as a partner at a law firm stated that the financial watchdog would now have to prove the alleged tokens are in fact securities.
“They don’t have a wire fraud statute as the DOJ does,” McGinley said, referring to wire fraud charges brought by the U.S. Department of Justice on the same date.
The charges were issued to Ishan Wahi, a former product manager at Coinbase, who engaged in wire fraud and conspiracy to commit wire fraud.
Ishan Wahi, who worked on Coinbase’s asset-listing team, had prior knowledge of the timing and public announcements of assets the exchange planned to list.
Wahi then began sharing confidential Coinbase information with his brother Nikil Wahi and associate Sameer Ramani under the garb of numerous crypto accounts and anonymous digital wallets.
The defendants were finally busted after one of them tried to flee India a day before a scheduled meeting with the exchange, according to the indictment.
SEC taking on individual actors rather than token issuers- Expert
Some in the industry feel the regulator is unlikely to move court against Coinbase, which has the means and the resources to pursue litigation against the former.
It still put Coinbase on notice that the SEC views these tokens as securities which on conviction would pressurize trading platforms to delist these tokens.
Although such a scenario would not be legally binding on the token issuers or Coinbase or other exchanges, the agency can leverage this decision against its more challenging enforcement targets.
Echoing similar sentiment, Joshua Rivera, General Counsel, Blockchain Capital expressed concern,
In an alarming strategy, the Commission directly pursues only the individual actors (as opposed to Coinbase and the token issuers) who lack the resources and the motivation to litigate the securities laws implications of the case. The SEC can expect an easy win and a federal opinion (or settlement) in fact, which the they can then leverage against its more challenging enforcement targets.