After being accused of fraud by a former employee, Coinbase disputed assertions made by the Securities and Exchange Commission that it provides unregistered securities.
A former Coinbase product manager and two others were charged on Thursday with wire fraud concerning a purported cryptocurrency insider trading conspiracy. This is the first instance of its sort.
U.S. prosecutors charged the defendants with conspiring to make money by preemptively launching new currencies on the Coinbase platform.
Nine of the reportedly 25 tokens sold in the scheme, according to a second complaint the SEC filed on Thursday, were securities.
Paul Grewal, the chief legal officer of Coinbase, refuted the allegations in a blog post titled “Coinbase does not list securities” on Thursday. Story over.”
Grewal wrote in the blog post that “seven of the nine assets referenced in the SEC’s accusations are listed on Coinbase’s platform.” There are no securities among these assets.
The SEC has examined Coinbase’s stringent process for analyzing and reviewing each digital asset before it is made available on our exchange.
Regulators and cryptocurrency companies have both expressed confusion over the thorny issue of whether or not some cryptocurrencies should be regarded as securities.
The SEC is suing Ripple, a blockchain company with headquarters in San Francisco, because XRP, a cryptocurrency it is closely linked to, should be classified as a security.
The Howey Test, a significant Supreme Court decision, established several requirements that must be met for an asset to qualify as a security. The SEC defines security as “an investment of money in a joint venture, with a reasonable expectation of profit derived from others’ efforts.”
The SEC’s stance is crucial because it may require Coinbase to categorize some of the cryptocurrencies it offers as regulated financial instruments.
Stringent disclosure and registration requirements are involved in listing securities, such as stock in a firm. In contrast, because cryptocurrencies are unregulated, they are not subject to the same scrutiny.
When it comes to its structure for listing tokens, Coinbase is acknowledged to be more cautious than some other exchanges. For instance, according to CoinGecko data, whereas Coinbase lists just over 200 coins, both Binance and FTX offer more than 300 coins.
However, Coinbase disputes the SEC’s accusation of hosting unregulated securities on its platform.
The Commodity Futures Trading Commission’s Caroline Pham commented on the situation on Thursday, calling the SEC securities fraud allegations a “striking example of regulation by enforcement’.” The CFTC regulates trading in foreign exchange.
“The SEC’s claims might have broad repercussions beyond this particular instance,” Pham said in a statement. “This emphasizes how crucial and vital regulators work together.” Regulations become more apparent when they are in the open rather than hidden.
Grewal of Coinbase echoed Pham’s judgment.
The SEC is relying on these kinds of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those assets that are not securities, he wrote in the blog post. “Instead of establishing tailored rules inclusively and transparently,” he said.