Coinbase, a leading digital currency exchange, has filed an amicus brief in the insider trading case against its former employee, Ishan Wahi, and his brother. While Wahi has admitted to insider trading, he is disputing the Securities and Exchange Commission’s (SEC) allegations of securities fraud.
Coinbase denies that any of the tokens that Wahi inside-traded with associates were securities, arguing that it does not list securities. However, the exchange would like to list securities if the SEC gave it proper rules and guidance.
The SEC’s Allegations of Securities Fraud
The SEC has accused Wahi of securities fraud, alleging that he leaked information about new token listings on Coinbase to his brother and associates, who then used the information to profit from trading in advance of the public announcement. Wahi has pleaded guilty to insider trading but is contesting the SEC’s allegations of securities fraud, arguing that the tokens in question were not securities.
Coinbase’s Argument for Rulemaking
Coinbase’s amicus brief argues that the SEC’s case against Wahi rests on the erroneous premise that the tokens in question were securities. Coinbase does not list any securities on its platform, but it would like to if given proper guidance and rules from the SEC.
The exchange has accused the SEC of failing to provide clear guidance, deviating from its own earlier statements, and ignoring petitions filed by Coinbase. The exchange believes that rulemaking is the only realistic way for the SEC to provide fair notice to affected stakeholders and coherently consider all important aspects of regulating the crypto industry.
Last week I testified to Congress about Coinbase’s futile effort to register with the SEC so we can begin to offer digital asset securities. Today we filed an amicus brief in SEC v. Wahi that explains why this misguided suit only makes things worse. 1/5https://t.co/9iWYrWwpiI
— paulgrewal.eth (@iampaulgrewal) March 14, 2023 The Blockchain Association’s Amicus Brief
In mid-February, the Blockchain Association trade group filed an amicus brief in the same case. The group argued that prior regulation by enforcement via the SEC has made the US an opaque and confusing jurisdiction to do business in for the digital assets industry. The Blockchain Association also criticized the SEC for seeking to backdoor a precedent that can be used in other cases where the Department of Justice has brought an action, and the SEC has piled on with similar allegations of securities laws violations against absent third parties.
Did the SEC violate due process and fairness by proceeding with enforcement without providing clear regulatory guidance?
How will the outcome of the Wahi insider trading case affect the future of crypto regulation?
What are the regulatory challenges facing the digital assets industry, and how can practical solutions be developed?