The first-ever crypto insider trading case may have more regulatory consequences than originally anticipated.
As the Securities and Exchange Commission (SEC) continues to pursue regulatory oversight of the cryptocurrency market, a prominent industry lawsuit seems ready to address more issues regarding the scope of its power.
Ishan Wahi, a former Coinbase manager accused of insider trading, is defended by attorneys who dispute the SEC’s contention that the nine cryptocurrencies he engaged with are securities.
According to an argument submitted on Monday, Wahi’s attorneys said that the SEC was aiming to acquire control over the crypto asset industry via precedent-setting in the courts, as opposed to getting it through Congress.
In July, the DOJ indicted Ishan Wahi, his brother Nikhil Wahi, and their acquaintance Sameer Ramani for participating in an insider trading scam using cryptocurrencies. Taking advantage of Ishan’s intimate information about new coins that will be posted on Coinbase before to their public release, the group earned $1.5 million.
Nikhil has subsequently pleaded guilty to these accusations, although Ishan has not. The brothers’ cryptocurrencies, including AMP, RLY, POWR, and LCX, are not securities, according to the attorneys representing the latter. Therefore, no securities laws could have been broken in the first place.
The complaint states, “The SEC intends to pervert the federal securities laws beyond recognition and gain regulatory authority over an altogether new sector.” This move is a misuse of authority. Federal legislation prohibits it categorically. And this Court ought to dismiss it.”
Security is an investment contract that meets The Howey Test’s four essential conditions. For a securities transaction to occur, there must be a financial investment in a shared company accompanied by the expectation of rewards from the labour of others.
The defendants assert that the tokens at issue were all sold on the secondary market, and as such, their purchasers never “invested” in any particular firm. In addition, the majority of the value of such tokens is derived from market movements rather than centralized management efforts.
Gary Gensler, head of the Securities and Exchange Commission, thinks that the great majority of cryptocurrencies satisfy the Howey Test and may thus be categorized as securities. Even Ether, the second-largest cryptocurrency by market capitalization, has been scrutinized for potentially passing the criteria, especially following its switch to a proof-of-stake consensus method.
While Gensler maintains a tight-lipped stance on the majority of crypto assets, he has admitted that Bitcoin should be classified as a commodity and not a security. The head of the Commodity Futures Trading Commission (CFTC) and crypto-savvy congressmen concur with him on this issue.
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