As the Securities and Exchange Commission (SEC) continues to vie for regulatory presence in the crypto market, a high-profile industrial lawsuit seems poised to answer more questions about how far its authority should go.
Lawyers defending Ishan Wahi, a former Coinbase manager accused of insider trading, dispute the SEC’s claim that a list of 9 cryptos Wahi interacted with are, in fact, securities.
What cryptos are securities?
for an argument archived On Monday, Wahi’s lawyers claimed that the SEC was trying to establish authority over the crypto-asset sector by setting precedent through the courts, rather than getting it from Congress.
In July, the DOJ filed a accusation against Ishan Wahi, his brother Nikhil Wahi and their friend Sameer Ramani for participating in a cryptocurrency insider trading scheme. The group made a $1.5 million profit by leveraging Ishan’s inside knowledge of the new tokens to be listed on Coinbase, ahead of their public announcement.
Although Nikhil since then pleaded guilty to such charges, his brother Ishan does not have. According to the latter’s lawyers, the cryptocurrencies the brothers traded, including AMP, RLY, POWR, and LCX, are not actually securities. Therefore, no securities law could have been violated to begin with.
“The SEC seeks to distort federal securities laws beyond all recognition and gain regulatory dominance over an entirely new industry,” the filing read. “That gambit is an abuse of power. Federal law clearly prohibits it. And this Court should reject it.”
A security is an investment contract marked by four key criteria, as established by Howey’s test. In order for a securities transaction to take place, there must be an investment of money in a common enterprise with the expectation of earning a profit from the efforts of others.
The defendants claim that all of the tokens in question were sold on the secondary market; therefore, buyers never ‘invested’ in any specific company when they bought them. Furthermore, the value of such tokens derives most of its value from fluctuations within the market, rather than from the management efforts of a centralized party.
where is the argument
To this day, SEC Chairman Gary Gensler maintains that the vast majority of cryptocurrencies pass the Howey test and can therefore be classified as securities. Even Ether, the second largest cryptocurrency by market capitalization, has been affected. scrutiny for possibly passing the test, particularly after their switch to a proof-of-stake consensus mechanism.
While Gensler remains mum about his thoughts on many specific crypto assets, he has granted that Bitcoin is worth classifying as a commodity, rather than a security. Both president of the Commodity and Futures Trading Commission (CFTC) and crypto-savvy members of congress agree with him on this point.
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This post Lawyers challenge SEC attempt to label 9 tokens as securities
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