UPDATE 1-Trade group argues that US SEC case unfairly labels cryptos as securities
(Adds the SEC declined to comment)
By Hannah Lang
Feb 22 (Reuters) – The Chamber of Digital Commerce, a cryptocurrency industry association, is urging a federal court to dismiss a lawsuit brought by the U.S. Securities and Exchange Commission against former Coinbase employees accused of insider trading, arguing that the suit wrongly labeled several crypto assets as securities.
The group said in an amicus brief filed Wednesday in a Washington district court that if the court were to proceed with the US Securities and Exchange Commission (SEC) case, there could be far-reaching consequences for the digital asset industry and harm. crypto investors.
An amicus brief is a document filed in court by an organization or person who is not named in the case, but who has a strong interest in the case. The Blockchain Association also filed an amicus brief in the case earlier this month.
“We are considering this regulation by enforcement because it sets new legal precedent through an enforcement action, but it would be much better for the entire industry if we just had clear rules for the road,” said Perianne Boring, founder and CEO of the Chamber of Digital Commerce, in an interview.
The SEC in July indicted Ishan Wahi, a former product manager at Coinbase, and his brother Nikhil Wahi, as well as their friend Sameer Ramani, accusing them of buying and selling at least 25 cryptoassets for a profit based on insider knowledge, nine of which the agency said they had identified as securities.
Federal prosecutors also filed related criminal charges against the Wahi brothers and Ramani, accusing the defendants of wire fraud in the first-ever insider trading case involving cryptocurrency. Ishan Wahi pleaded guilty to two counts of conspiracy to commit wire fraud earlier this month.
But the Chamber of Digital Commerce argues that the SEC’s case is a backdoor attempt to label crypto-tokens as securities, and that the regulator should instead have either announced a rule clarifying expectations or waited for certainty from Congress.
“It’s in these kinds of situations where I think optimally, because you have an intra-state fight, you have Congress to sort out the regulatory morass or at least have a typical ordinary notice and comment process,” said Daniel Stabile, co. -chairman of the digital assets and blockchain technology group at Winston & Strawn LLP, which is one of the lawyers representing the Chamber of Digital Commerce.
The SEC declined to comment on the amicus brief.
The crypto industry has previously criticized the SEC for pursuing enforcement cases against digital asset companies, arguing that the regulator should instead engage in formal regulation specific to cryptocurrency. The SEC has argued that pre-existing securities laws also apply to digital assets, and that many crypto tokens meet the definition of a security.
If the court were to rule in the SEC’s favor, crypto exchanges that offer the nine tokens the SEC has labeled as securities could face state and federal regulatory actions as well as private lawsuits, the Chamber of Digital Commerce argued in its amicus brief.
The move is also likely to hurt the value of these tokens, which could hurt retail investors, the group said.
(Reporting by Hannah Lang in Washington Editing by Nick Zieminski and Lincoln Feast.)
