Legal Experts Say SEC Will Need to Prove Tokens in Coinbase Insider-Trading Case
According to a former persecutor, the US Securities and Exchange Commission will need to prove that tokens listed on the Coinbase crypto exchange are securities in order to pursue its current insider-trading case against a former Coinbase product manager and his associates.
Ian McGinley, now a partner at the law firm of Akin Gump Strauss Hauer & Feld, told CoinDesk TV’s “First Mover” on Friday that the SEC cannot file a case unless the tokens in question are securities.
“They don’t have a wire fraud statute like the DOJ,” McGinley said Thursday, referring to the wire fraud charges released by the US Justice Department.
McGinley, who served more than a decade as an assistant U.S. attorney in the Southern District of New York, said the Justice Department could sidestep the debate over whether tokens are securities.
“The SEC doesn’t have that option,” McGinley said. “They have to prove it’s a security.”
The SEC’s allegations followed a complaint issued by the DOJ alleging that Ishan Wahi, a former product manager at Coinbase, was involved in wire fraud and conspiracy to commit wire fraud. The allegations allege that Wahi shared secret Coinbase information to his brother Nikil Wahi and colleague Samir Ramani about which digital tokens were to be listed on the cryptocurrency trading platform. Both the brothers and Ramani reportedly made a profit of $1.5 million from trading the tokens.
The SEC made charges against all three based on similar charges. However, for the first time ever, the SEC used the complaint to identify nine tokens, three of which allegedly traded as securities, without charging issuers or exchanges that issued digital assets.
McGinley noted that in this case, Coinbase is the victim “because it was their confidential information that was allegedly stolen.” Whether the crypto exchange will file to intervene as a witness remains to be seen. “They are not parties to this action. They have not been charged in any of the cases,” McGinley said.
In general, the SEC has taken enforcement action against token issuers. In this case, the question of whether issuers will have the opportunity to defend themselves remains unclear.
Earlier this week, Coinbase filed a petition to the SEC criticizing the current state of crypto regulation in the US, stating that “the current rules for securities just don’t work for digital assets,” it said. Underlining that without effective regulation, the US will be left behind. Digital asset innovation.
Whether Coinbase can be used as an example is still a gray area when it comes to regulation. “It really depends on the regulator,” McGinley said.
“It’s the SEC saying, ‘We don’t need any new rules here. A security token acts like a security, it runs like a, [and] We’re going to treat it like one for this insider trading case,'” McGinley said.
Read more: Ex-Coinbase Manager of 3 Arrested in Crypto Insider Trading Charges