The Securities and Exchange Commission (SEC) filed an insider trading case last month against a former Coinbase Global Inc. manager. The move is being read as a “warning shot” against the virtually unregulated cryptocurrency industry.
The federal agency charged Ishan Wahi, 32, with insider trading for allegedly giving a friend and a relative a heads up on which cryptocurrencies would be debuting on the Coinbase platform. According to the complaint, he also faces a charge of wire fraud, per Roll Call.
This case is peculiar because the SEC determined that several digital assets at issue in the Wahi case were securities, giving the SEC jurisdiction over the matter.
Lee Reiners, executive director of the Global Financial Markets Center at Duke University, told Roll Call that some crypto issuers could face SEC inquiries for the first time if the securities designation holds.
He speculated that crypto exchanges frantically studied the SEC’s complaint to see if they were trading in any of the newly-designated securities.
According to Roll Call, uncertainty around the designation will remain until the judicial system decides the question.
“They’ll wait and then if the court agrees with them, of course at that point the exchanges themselves will be forced to register [their assets as securities],” stated Reiner. “To me, maybe it’s a longer process to getting to a desired outcome, but I think in the SEC’s case it’s a more surefooted way to get to the desired outcome, which is to have crypto exchanges brought into the securities regulatory perimeter.”
Still, crypto enthusiasts feel that the SEC is attempting to force regulation onto the crypto market.
Mark Cuban, the billionaire owner of the Dallas Mavericks, criticized the SEC in a tweet last month, writing, “Think this is bad? Wait till you see what they come up with for registration of [non-fungible] tokens. That’s the nightmare that’s waiting for the crypto industry. How else do you keep thousands of lawyers employed and create reasons to ask for more taxpayer money?”
Former SEC litigation attorney and partner at BakerHostetler Teresa Goody Guillén explained:
“By this case, the SEC exhibited its willingness to venture into unchartered waters — it’s unsettled as to whether these crypto assets are securities in the first place. The shockwaves that this case created and the attention it is receiving may result in Congress and other regulators taking actions to create more certainty in the crypto space.”
If Wahi’s case proceeds to trial, the SEC must prove that the crypto assets are indeed securities. The outcome would prove pivotal for a digital asset industry with a market cap of more than $1 trillion in the United States.
