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Proposed Israeli law to classify crypto as securities will ‘kill the industry’

A proposed definition change by an Israeli regulator would cause immense harm to the local crypto industry, according to the CEO of Altshuler Shaham Horizon.

Proposed laws in Israel that would see cryptocurrencies classified as securities would cause huge damage to the local crypto industry, according to the chief of an Israeli crypto service provider.

Cointelegraph Magazine editor Andrew Fenton spoke with Ilan Sterk, the CEO of Altshuler Shaham Horizon. The Tel Aviv-based firm provides cryptocurrency custody and trading services and is one of the few firms in the country approved to deal with banks.

Sterk said the current legal situation for crypto in Israel is “quite complicated.”

Altshuler Shaham Horizon CEO Ilan Sterk. Source: Facebook

He explained the current proposal is to have digital assets under the supervision of the Israel Securities Authority (ISA), the nation’s securities regulator.

“To classify a digital asset as a security, it’s changing everything here,” he said. Sterk didn’t think the current proposal would be enacted as is, saying he was “not sure it will be the same as they want to be,” and added:

“You cannot classify all the digital assets as securities because it will kill the industry.”

The ISA released a proposal in early January that would give the regulator sweeping new powers to police the Israeli crypto industry.

It seeks to amend the definition of securities to include “digital assets” used for financial investment. It clarified the definition of “digital assets” as a digital “representation” of value or rights used for financial investment.

The ISA also seeks powers to oversee the crypto industry, to set requirements for issuers and intermediaries and to impose sanctions for non-compliance.

Under the ISA’s proposal, issuers of digital assets would be required to publish a prospectus-like document before issuing or registering digital assets for trading.

The public has until Feb. 12 to provide comments and feedback on the matter.

Meanwhile, the Ministry of Finance laid out its recommendations for crypto industry regulations in November last year.

Related: Israeli court rules authorities can seize crypto in 150 blacklisted wallets

Among the proposals was one that would allow crypto service providers to operate in Israel, at least temporarily, if they had a parallel license from abroad.

Sterk said the proposal would “make some lives a little bit easy” regarding the operations of foreign crypto exchanges in Israel as a license in the country “can take up to two, three or four years to get.”

According to the latest January figures from the ISA, it estimated there were around 150 companies operating in the local crypto industry, and more than 200,000 Israelis invested in crypto.

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Former Coinbase manager slams SEC in motion to dismiss insider trading case

The attorneys for brothers Ishan and Nikhil Wahi want the case thrown out, arguing that the Securities and Exchange Commission was wrong when it charged the pair.

A former product manager at cryptocurrency exchange Coinbase has moved to dismiss charges of alleged insider trading, with his lawyers arguing the tokens he allegedly traded were not securities.

Lawyers representing ex-Coinbase employee, Ishan Wahi, and his brother, Nikhil Wahi, filed a motion on Feb. 6 in the United States District Court for the Western District of Washington to dismiss charges laid by the Securities and Exchange Commission.

The SEC charged the brothers and their associate, Sameer Ramani, with insider trading last July, alleging the trio made $1.1 million using Ishan’s tips on the timing and names of tokens in upcoming Coinbase listings.

In an over 80 page document, the lawyers outlined how the SEC was “wrong” in its charges.

They argued the cryptocurrencies allegedly traded by the Wahi’s did not fit the legal definition of a security, as they had no “investment contract [...] Written or implied,” comparing them instead to baseball trading cards and beanie babies.

Lawyers for the Wahi brothers argued the tokens allegedly purchased by the pair are akin to physical baseball cards, such as those pictured, which can sell for thousands. Source: Twitter

They argued that token developers have “no obligations whatsoever” to buyers on the secondary markets, adding:

“With zero contractual relationship, there cannot be an ‘investment contract.’ It is that simple.”

The tokens, the lawyers argued, were also all utility tokens. They emphasized the tokens’ primary use is on a platform rather than as investment products.

“None of the tokens were like stock [...] The very object of each token was to facilitate activity on the underlying platforms and, in so doing, enable each network to develop and grow.”

The Wahi brothers and Ramani purportedly purchased at least 25 cryptocurrencies before the Coinbase listings — of which at least nine the SEC asserts are securities — before selling them for a profit shortly after their listing.

Lawyers slam SEC for regulatory muscling

The Wahi’s lawyers lambasted the SEC for its apparent attempt at “trying to seize broad regulatory jurisdiction over a massive new industry via an enforcement action.”

They said that the regulator “lacks clear congressional authorization to deem the tokens at issue to be ‘securities,’” adding:

“If the SEC really believes digital assets are securities, it should engage in a rulemaking or other public proceeding explicating that view and providing guidance to regulated parties on its implications.”

Commodity Futures Trading Commission Commissioner Caroline Pham has previously expressed concern at the possible “broad implications” of the case.

Related: Did dYdX violate the law by changing its tokenomics?

She said the SEC’s actions don’t address the question of whether some cryptocurrencies are securities through a “transparent” process that develops “appropriate policy with expert input.”

The Wahi brothers and Ramani also faced charges from the U.S. Attorney’s Office for the Southern District of New York relating to wire fraud and wire fraud conspiracy.

Nikhil pleaded guilty to the charges and was sentenced to 10 months in prison for wire fraud conspiracy in January. Ishan pleaded not guilty to the charges in August. Ramani seemingly remains at large.

The motion was signed by 10 attorneys from five separate law firms.

If the motion to dismiss is denied by District Judge Tana Lin, the case will continue.

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