The SEC (Securities and Exchange Commission) has claimed that the Cryptocurrency exchange-Coinbase, offers unregistered securities. This came after alleged fraud charges that were leveled against a former employee of the exchange.
A former product manager who worked at Coinbase, along with a couple of other individuals, was charged on Thursday in a first-of-its-kind case of wire fraud that was connected to an insider Cryptocurrency trading scheme.
The Individuals were accused by United States prosecutors of plotting to make some profit from the Coinbase platform on listings of new tokens shortly before the scheme was exposed to the public. Further details revealed by the Securities and Exchange Commission show that nine out of the 25 tokens traded in the scheme happened to be Securities.
Although the chief legal officer for Coinbase, Paul Grewal has denied the claims by SEC, Grewal via a blog post said the exchange doesn’t list Securities.
WHAT ARE SECURITIES
These are digital assets that hold power or represent the ownership rights and value of assets to a token on the Blockchain.
Regulators can view a token as security when it meets all the Howey Test criteria.
•Presence of investment money
• A common enterprise
• Substantial expectation of profit via effort or investment
Grewal in the blog post regarding the incident revealed that seven of the nine assets included in the charges filed by the SEC are listed on Coinbase’s platform, and none of them are securities.
Further defending Coinbase, he mentioned the rigorous process employed by the exchange to analyze digital assets before listing on Coinbase, a process of which the SEC is fully aware.
Caroline Pharm, the commissioner of the Commodity Futures Trading Commission, presumes that the SEC is using these strategies to oversee all digital assets and bring them under its jurisdiction.
It’s been a debate over the years for companies and regulators whether cryptocurrencies are qualified to be called securities.
This has stirred several cases and lawsuits filed. An instance is a lawsuit from the Securities and Exchange Commission which claims that XRP, a popular cryptocurrency that is the native token of Ripple should be treated as a security.
The SEC has a prominent position in calling the shots for this kind of regulation, and Coinbase may likely be forced to categorize a number of its assets listed as regulated financial instruments.
The allegations from SEC might have a wider implication as activities unfold, however Coinbase over the years is known to maintain conservative in its entire framework when it comes to token listing.