“Prior to these announcements, which typically resulted in an increase in the assets’ prices, Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them shortly after the announcements for a profit,” the SEC said.
The nine tokens are: Flexa’s AMP, rally’s RLY, DerivaDEX’s DDX, XY Labs’ XYO, Rari Capital’s RGT, Liechtenstein Cryptoassets Exchange’s LCX, Powers POWR, DFX Finance’s DFX and Kromatika Finances’ KROM.
What is a security?
This decision, which surprised the industry, has important consequences because until now tokens, or coins, have not been considered securities.
This means that they escape strict authority supervision and are not subject to the same rules for financial transparency and publicity as shares in, for example, a company. The listing process is also less strict than for a security.
“Each of the nine companies invited people to invest with the promise that it would use future efforts to improve the value of their investment,” the SEC alleged.
The regulator wants to refer to a Supreme Court ruling, the Howey test, which sets out certain criteria for defining an asset as a security.
The SEC’s decision drew a stream of criticism from the industry, other regulators and lawmakers.
Coinbase filed a petition with the SEC, asking the agency to say how it would apply federal securities laws to crypto assets, according to a blog post.
“The SEC v. Wahi case is a striking example of ‘regulation by enforcement,'” Commodity Futures Trading Commissioner Caroline Pham said in a statement posted on Twitter.
The crypto industry accuses the SEC of being vague in its rules and demands clarity.
For five years, the SEC has regulated the crypto industry via enforcement actions, targeting startups that raised money through initial coin offerings.
For example, the regulator is in a showdown with Ripple, a blockchain payments firm based in San Francisco. In a lawsuit, the commission says that XRP, a token associated with Ripple, should be seen as a security. The company rejects the claim.
Another sign of the tensions: The SEC has said it does not consider bitcoin and ether, the top two cryptocurrencies by market capitalization, to be securities.
But the current SEC chairman, Gary Gensler, remains vague about ether. He told lawmakers last May that bitcoin is a “commodity token” but sidestepped questions about ether.
