The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit regarding insider trading in cryptocurrencies.
2024-09-27 01:20:37
On July 21, 2022, the U.S. Securities and Exchange Commission (hereinafter referred to as the "SEC") filed a lawsuit in the District Court for the Western District of Washington against former Coinbase employee Ishan Wahi, his brother, and a friend, alleging that the three defendants engaged in illegal securities insider trading. According to the SEC's complaint, during his tenure at Coinbase, Ishan was responsible for coordinating cryptocurrency listing announcements, which indicated which cryptocurrencies would be available for trading on Coinbase's platform. Coinbase treated the contents of these announcements as confidential company information and warned employees not to trade based on this information or disclose it to third parties. However, from June 2021 to April 2022, Ishan repeatedly ignored these warnings and leaked information about which cryptocurrencies would be listed on Coinbase and when to the other two defendants. The recipients of this information would then purchase the relevant cryptocurrencies before the announcements were made public and sell them afterward. The SEC claims that the two defendants bought at least 25 cryptocurrencies in this manner and profited over $1.1 million.
The SEC's case hinges on proving that the cryptocurrencies traded by the defendants fall under the category of securities. In the complaint, the SEC applied the Howey Test to classify the following nine cryptocurrencies as securities: AMP, RLY, DDX, XYO, TRGT, LCX, POWR, DFX, and KROM. Under the Howey Test, a transaction is considered an investment contract (a type of security) if it involves an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.
Currently, there is significant debate over whether cryptocurrencies qualify as securities, and this determination is closely tied to the specific characteristics of each cryptocurrency. It remains uncertain whether the court will agree with the SEC's classification of the aforementioned nine cryptocurrencies as securities. However, it is noteworthy that there is a clear trend of the SEC adopting a more aggressive approach in determining whether a cryptocurrency qualifies as a security, reflecting the agency's intent to strengthen its regulatory oversight of the cryptocurrency market.
Although Ishan's case is far from being resolved, potential cryptocurrency investors should be aware of the risks associated with government regulation. Funds targeting cryptocurrency investments should also remain vigilant and inform potential investors about the regulatory risks involved.