US Regulator Lists 9 Tokens as Unregistered Securities

July 26, 2022, 10:08 AM AEST - 2 weeks ago

In a groundbreaking insider trading case against a former Coinbase employee, US regulator the Securities and Exchange Commission (SEC) has identified nine tokens in its complaint to be unlicensed securities:

More Bad Press for Coinbase

The case was announced as insider charges were brought against a former Coinbase product manager, his brother, and his friend for allegedly trading numerous crypto assets on multiple occasions, prior to making them available for public trading.

Coinbase CEO Brian Armstrong took to Twitter saying that the company had received information earlier in the year about possible frontrunning and “immediately launched an investigation”:

As a result of our investigation we identified three suspects and provided this information to law enforcement. One person was a Coinbase employee who we terminated. Today, the DOJ has criminally charged this former employee and the two other individuals for this abusive conduct.

Brian Armstrong, CEO, Coinbase

Unregistered Securities Claim, Again

Earlier this year, Coinbase became the subject of a class-action lawsuit for selling 79 crypto assets alleged to be unregistered securities, and unfortunately for them, another claim appears likely.

This case, emanating from the SEC, alleges that those accused were frontrunning the public listing of as many as 25 digital assets, with nine being described as unlicensed securities. Consequently, they profited to the tune of some US$1.1 million.

Specifically, the claim referred to Powerledger (POWR), Kromatika (KROM), DFX Finance (DFX), Amp (AMP), Rally (RLY), Rari Governance Token (RGT), DerivaDAO (DDX), LCX, and XYO.

Gurbir Grewal, director of the SEC’s Division of Enforcement, commented that they were less concerned with labels “but rather the economic realities of an offering”.

He added: “In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase. Rest assured, we’ll continue to ensure a level playing field for investors, regardless of the label placed on the securities involved.”

Caroline Pham, a commissioner at the US Commodity Futures Trading Commission (CFTC), said that the SEC’s actions constituted “regulation by enforcement” rather than addressing the question of whether or not certain crypto assets are securities “through a transparent process that engages the public to develop appropriate policy with expert input”.

It’s become increasingly self-evident that regulatory clarity is required on the question of whether crypto assets are unregistered securities, as is often alleged. Securities require adequate disclosure, and arguably that remains conspicuously absent in the vast majority of crypto projects.

However, on the bright side, one benefit of crypto – as highlighted in this case – is that it’s very difficult to conceal your trail if shenanigans are underfoot:

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