The Securities and Exchange Commission and the Department of Justice brought charges against three individuals. However, the SEC’s assertions that cryptocurrencies are securities are what caught everyone’s attention and could hold greater implications for the crypto space.
SEC Labels Nine Digital Tokens As “Securities”
The US Securities and Exchange Commission used the backdrop of its first insider trading case on Thursday to declare nine digital tokens as securities. The declaration is significant with the SEC looking to define its oversight of cryptocurrencies through its enforcement actions. The federal regulator had filed a complaint on Thursday, alleging that a former Coinbase product manager had engaged in insider trading, giving his brother and another friend tips on what assets Coinbase would be listing.
In this complaint, the SEC declared that nine of the crypto assets listed in the complaint were securities.
A New Development
The SEC identifying cryptocurrencies as securities is not new. However, it did so in settlements with the issuer or enforcement actions. The complaint registered on Thursday was the first time the SEC identified cryptocurrencies as securities without charging issuers or with the exchange even listing the assets. The tokens mentioned in the complaint were AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX, and KROM.
Setting A Precedent?
So far, the Securities and Exchange Commission has refused to comment on the matter or if Thursday’s complaint was setting a precedent around how it would identify assets that it sees as securities. It also declined to comment on whether it was planning on bringing any future charges against exchanges that listed the assets mentioned in its complaint or that it would initiate action against Coinbase for listing the assets in question. An SEC official replied to queries stating that the investigation into the insider trading case was ongoing.
Commodity Futures Trading Commission (CFTC) commissioner Caroline Pham tweeted about the complaint, calling it a “striking example of regulation by enforcement.” Attorney Jason Gottlieb, practicing with Morrison Cohen LLP, stated that Coinbase and other exchanges are not party to the action. This means that they would not be able to challenge the SEC in court.
Cryptocurrencies Are Not Securities
Coinbase, on its part, retorted that none of the cryptocurrencies it lists are securities. It pointed to the ongoing Department of Justice action that did not mention or charge securities fraud. The exchange, in an updated blog post, called the SEC’s actions an unfortunate distraction, stating,
“The SEC charges are an unfortunate distraction from today’s appropriate law enforcement action.”
The SEC Complaint
In its 62-page complaint, the SEC went through each of the nine tokens, illustrating how each should be defined under the Howey Test. The SEC stated its complaint,
“Each of the nine companies invited people to invest on the promise that it would expend future efforts to improve the value of their investment.”
Coinbase also filed a separate petition with the SEC and asked the agency to create a rulemaking process to define how it would apply federal security law to cryptocurrencies.
“Securities law is thus not well-suited to govern digital assets. Attempted application of such ill-fitting laws to crypto creates a number of problems.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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