Trade group accuses SEC of “sneaky” handover in Coinbase insider trading case
The United States Securities and Exchange Commission (SEC) has again been accused of overstepping its authority and unfairly labeling crypto assets as securities, this time in its insider trading case against former Coinbase employees.
In an amicus filing on February 22, the US-based Chamber of Digital Commerce argued that the case should be dismissed as it represented an expansion of the SEC’s “regulation by enforcement” campaign and seeks to characterize secondary market transactions as securities transactions.
“This case represents an insidious, yet dramatic and unprecedented effort to expand the SEC’s jurisdictional reach and threatens the health of the US digital asset marketplace,” wrote Perianne Boring, founder and CEO of the Chamber of Digital Commerce.
The chamber highlighted that the “SEC’s intervention in the digital asset market” was never authorized by Congress, noting in other Supreme Court cases it has been ruled that regulators must first be given authority by Congress.
“By acting without congressional authorization, [the SEC] continues to contribute to a chaotic regulatory environment, harming the very investors it is charged with protecting,” it wrote on Twitter.
The chamber also argued that by bringing the securities fraud claim, the SEC was essentially asking the court to confirm that secondary market trades in the nine digital assets cited in an insider trading case against a former Coinbase employee constitute securities transactions, which it suggested was “problematic.”
– We have serious concerns [the SEC’s] seek to mark these tokens as securities in the context of an enforcement action against third parties who had nothing to do with the creation, distribution or marketing of these assets,” Perianne added.
The Chamber cited the LBRY v SEC case in its opinion, in which the judge had ruled that secondary market transactions would not be designated as securities transactions.
The judge had been persuaded by a paper from commercial contract lawyer Lewis Cohen, who pointed out that no court had ever recognized that the underlying asset was a security at any time since the ruling SEC v WJ Howey Co. – a case that set a precedent for determining whether a security transaction exists.
The latest amicus brief follows a similar filing by the advocacy group Blockchain Association on February 13, which argued that the SEC had overstepped its authority in the case and argued that it was “the latest salvo in the SEC’s apparently ongoing strategy of regulation by enforcement in the digital asset space .”
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An amicus brief can be filed by an amicus curiae, or “friend of the court”, who is a person or organization not involved in a case, but who can assist the court by offering relevant information or insight.
The SEC sued former Coinbase Global Product Manager Ishan Wahi, brother Nikhil Wahi and associate Sameer Ramani in July 2022, alleging that the trio had used confidential information obtained by Ishan to make $1.5 million in profits from trading 25 different cryptocurrencies.
