Trade group accuses SEC of ‘stealthy’ abuse in Coinbase insider trading case

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The United States Securities and Exchange Commission has once again been accused of overstepping its authority and unfairly labeling crypto assets as securities, this time in its insider trading case against former Coinbase employees.

In an amicus brief on Feb. 22, the U.S.-based Chamber of Digital Commerce argued the case should be dismissed because it represented an extension of the SEC’s “regulation by enforcement” campaign and seeks to characterize secondary market transactions as transactions in securities.

“This case represents a stealthy, yet dramatic and unprecedented effort to expand the jurisdictional reach of the SEC and threatens the health of the U.S. digital asset market,” wrote Perianne Boring, Founder and CEO of the Chamber of Digital Commerce.

The House pointed out that “SEC encroachment on the digital asset market” was never authorized by Congress and noted that in other Supreme Court cases, regulators had been held to first be authorized by Congress.

“By acting without the authorization of Congress, [the SEC] continues to contribute to a chaotic regulatory environment, harming the very investors it is charged with protecting,” he wrote on Twitter.

The Chamber also argued that by filing a securities fraud complaint, the SEC was essentially asking the court to confirm that the secondary market is trading the nine digital assets mentioned in a insider trading case against former Coinbase employee constitute securities transactions, which she said was “problematic”.

“We have serious concerns about [the SEC’s] attempt to qualify these tokens as securities in a legal action against third parties that have nothing to do with the creation, distribution or marketing of these assets,” added Perianne.

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The Chamber cited LBRY v. SEC in its brief, in which the judge ruled that secondary market transactions not be designated as titles transactions.

The judge had been persuaded by a document from commercial contracts lawyer Lewis Cohen, which pointed out that no court had ever recognized the underlying asset as a security at any time since the landmark SEC decision against WJ Howey Co. – a case that set the precedent for determining whether a security transaction exists.

The latest amicus brief follows a similar filing by advocacy group Blockchain Association on February 13, which also argued that the The SEC had exceeded its authority in the case and claimed it was “the latest salvo in the SEC’s seemingly ongoing strategy of regulation-by-enforcement in the digital asset space.”

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An amicus curiae brief is filed by an amicus curiae, or “friend of the court”, who is a person or organization not involved in a case but who can help the court by offering relevant information or ideas.

In July, the SEC sued former Coinbase Global product manager Ishan Wahi, his brother Nikhil Wahi, and business partner Sameer Ramani, alleging the trio had used confidential information obtained by Ishan to achieve gains of $1.5 million by trading 25 different cryptocurrencies.