Coinbase files court action to compel SEC’s response to rulemaking petition

April 25, 2023 Coin Telegraph

Coinbase is looking to force the SEC to respond to its rulemaking petition seeking rules for the crypto industry that's been pending since July 2022.

Coinbase filed a narrow action in a United States federal court that seeks to compel the Securities and Exchange Commission (SEC) to provide a "yes or no" response to a July 2022 petition.

The petition requested the SEC propose and adopt clearer regulatory guidelines for the cryptocurrency industry in the U.S.

In the exchange's July 2022 petition, it asked the financial regulator to answer a total of 50 specific questions concerning the regulatory treatment of certain digital assets.

According to an accompanying April 24 blog post penned by Coinbase Chief Legal Officer Paul Grewal the Administrative Procedure Act requires the SEC to respond to the exchange's rulemaking petition “within a reasonable time.”

Now that more than nine months have passed with no response, the exchange is pushing hard to get an answer:

"It seems like the SEC has already made up its mind to deny our petition. But they haven’t told the public yet. So the action Coinbase filed today simply asks the court to ask the SEC to share its decision."

"It’s important for the SEC and any other agency petitioned for rulemaking to respond to the petition once the agency has made up its mind, especially if the answer is no," Grewal added.

This is a developing story, and further information will be added as it becomes available.

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

February 7, 2023 Coin Telegraph

Coin Telegraph

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.

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.

Ishan Wahi and his legal team at Jones Day filed a strong motion to dismiss in the SEC's enforcement action regarding alleged insider trading of 9 tokens. https://t.co/s4WZuZThAp pic.twitter.com/kFJjYvdyJc
— Marisa Tashman Coppel (@mtcoppel) February 7, 2023

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.

US Financial Stability Oversight Council identifies stablecoins and cryptos as threats to financial system

December 17, 2021 Coin Telegraph

Coin Telegraph

"The Council recommends that state and federal regulators review available regulations and tools that could be applied to digital assets," says the FSOC.

In an annual report published on Friday, the United States Financial Stability Oversight Council, or FSOC, voiced its concern over the adoption of stablecoins and other digital assets.

Regarding stablecoins, the FSOC said consumer confidence could be undermined by factors such as illiquidity, lack of appropriate safeguards, opacity regarding redemption rights, and cyber attacks. "A run on stablecoins during strained market conditions may have the potential to amplify a shock to the economy and the financial system," the report said.

The report also alerted to developments in decentralized finance, or DeFi, where the use of high leverage could trigger a fire sale when the price of the underlying asset declines. This would result in a cycle of margin calls and further price declines. In addition, the report outlined that "users of these services face risk of loss due to market value fluctuations, operational issues, and cybersecurity threats, among other risks." In the report's recommendations, the FSOC calls for a unified effort between federal and state authorities to enact legislation on stablecoins and digital currencies.

Despite concerns surrounding the much-unregulated nature of the crypto industry, the report highlighted their innovative potential:

The development of digital assets and the use of associated distributed ledger technology may present the opportunity to promote innovation and further modernization of financial infrastructure. Regulatory attention and coordination are critically important in light of the quickly evolving market for digital assets.

US Crypto Laws