SEC investigating Coinbase for listing securities

Bloomberg News reported on Monday that the U.S. Securities and Exchange Commission (SEC) is looking into allegations that Coinbase Global Inc (COIN.O) wrongly let Americans trade digital assets that ought to have been registered as securities.

The news said that as the exchange introduced over 100 more tokens to its platform, including Dogecoin, the parody cryptocurrency based on the Shiba Inu meme, the SEC began looking more closely at Coinbase’s procedures. After they are originally listed, these coins often perform well, but they are quite erratic, and their value frequently decreases over time.

Paul Grewal, the company’s general counsel, said that Coinbase would discuss the situation with the SEC. According to Grewal, “We are sure that our meticulous due diligence procedure, which the SEC has previously approved, keeps securities off our platform.”

A security is often a tradable financial asset having monetary worth that is required to be registered with the SEC. Cryptocurrency is complicated since not all digital assets are regarded as securities. Cryptocurrencies that act as “sovereign currencies,” such as Bitcoin and Ether, are not securities, according to former SEC chairman Jay Clayton, who said this on CNBC in 2018. However, digital assets and tokens used in initial coin offerings (ICOs) are securities.

Asserting that the US lacks “a clear and functional regulatory environment,” Coinbase petitioned the SEC last week (pdf) to define precisely what it deems a security. According to Coinbase, the SEC adopts an “enforcement-first” strategy rather than defining a set of regulations that businesses must follow.

Separate inquiry into insider trading

The SEC’s action against former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi, and his buddy Sameer Ramani are unrelated to this inquiry. Ishan allegedly “repeatedly tipped the time and substance of impending listing announcements” to his brother and friend, resulting in earnings of over $1.1 million,” according to the agency’s first allegation against the three. Nikhil Wahi and Ramani allegedly bought “at least 25 crypto assets, at least nine of which were securities,” according to the report.

The regulator said in separate civil lawsuits that Wahi’s brother Nikhil Wahi and their friend Sameer Ramani bought and sold at least 25 crypto assets for a profit, nine of which the agency recognized as securities.