On the 21st of July, the US Department of Justice indicted Ishan Wahi – a former Coinbase manager, along with his brother and a third individual – on insider trading charges. This was a historic first indictment for insider trading in the crypto space. Now, though, as the dust is settling, a dispute over the nitty-gritty of the case seems to have appeared between the SEC and the CFTC, an anti-fraud authority whose purview often overlaps with that of the former.
Far-Reaching Implications By the SEC
According to CFTC Commissioner Caroline D. Pham, the decision to assess nine of the tokens mentioned in the indictment as securities could have far-reaching implications for future legal disputes and consumers alike. The tokens classified as securities in the recent case are ENS, GALA, POWR, and ALCX, among others.
Read my statement on #SEC v. Wahi, regulation by enforcement & #CFTC authority #crypto #digitalassets #DAO pic.twitter.com/xbHvyshx8l
— Caroline D. Pham (@CarolineDPham) July 21, 2022
The SEC’s heavy-handed tactics were called into question by Mrs. Pham, who stressed the importance of regulatory authorities working together to prevent unnecessary friction caused by uncertain regulation.
Regulatory clarity comes from being out in the open, not in the dark. Given the overriding public interest and the open questions on the legal statuses of various digital assets, such as certain utility tokens and DAO-related coins, the CFTC “should use all means available to fulfill its statutory mandate to vigorously enforce the law and uphold the Commodity Exchange Act.”
Coinbase, CFTC, and DOJ Second-Guess the SEC
The CFTC Commissioners’ statement was applauded by Coinbase, whose Chief Legal Officer went on record to reiterate the company’s commitment to avoid securities trading on its platform.
“Instead of crafting tailored rules in an inclusive and transparent way, the SEC is relying on these types of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those assets that are not securities.”
The DOJ appears to agree with Coinbase and the CFTC, choosing not to file charges for securities fraud against the three defendants. For now, only the insider trading charges remain.
Paul Grewal – the CLO of Coinbase – went on to say that, unfortunately, there is still no clear regulatory framework for digital securities in the US. In light of this fact, the official policy of Coinbase is to avoid any tokens that could be viewed as securities and to immediately comply once a strong legal framework regarding digital securities is set in stone by the US government.
For now, the court case will go on without the additional charge of securities fraud, focusing on insider trading and conspiracy charges.
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