Crypto hopes lawsuits can ease SEC oversight

Could a lawsuit against a former Coinbase employee and insider trader help the cryptocurrency sector?

Some in the digital asset world seem to think so, according to a Sunday (March 26) Wall Street Journal report detailing the case of Ishan Wahi, whose fate could help determine the future of an industry in crisis.

Wahi, a former Coinbase manager, pleaded guilty earlier this year to giving his brother and a friend tips that netted them nearly $1.5 million. He also faces a civil lawsuit from the Securities and Exchange Commission (SEC), which says some of the assets in the case were securities.

The WSJ notes that while the outcome of that case likely won’t change Wahi’s future — he faces prison time — it could change regulations on digital assets.

That’s because a motion seeking to dismiss the lawsuit claims the SEC lacks standing because Coinbase’s assets are not securities. After all, Wahi’s lawyers argue, their client was charged with conspiracy to commit wire fraud, not securities fraud.

The hope among the industry is that federal judges in cases like these will rule that crypto is different from stocks and bonds that are governed by Wall Street regulations, the WSJ said.

“This goes beyond the impact of the previous enforcement cases where the whole issue came down to the early point in a symbol’s life when the company trades it for money,” said Nick Morgan, a Los Angeles attorney whose nonprofit, the Investor Choice Advocates Network, represents people fighting what it says is overreach by the SEC.

“The Wahi case has a much greater impact because this by definition involves secondary and not initial transactions.”

As PYMNTS wrote recently, crypto’s road to regulatory acceptance seems to be getting longer by the day, and may not even happen in the US, if several alarmist observers are to be believed.

Last week, the SEC issued a notice to investors that cryptocurrency offerings across the US market may be illegal because they are not registered with the regulator.

Tensions between crypto companies and US regulators have peaked recently, with criticism getting louder and louder on both sides.

“The only money you should put at risk with any speculative investment is money you can afford to lose entirely,” the SEC said.

“No cryptoasset entity is registered with the SEC as a national securities exchange. … And no existing national securities exchange currently trades cryptoasset securities.”

Coinbase responded with a blog post titled: “We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead.”

The company said it had been prepared for the action and was confident in its business, “the same business we presented to the SEC for us to become a public company in 2021.”