The Securities and Exchange Commission (SEC) is determined to achieve a decisive victory in the lawsuit filed against Coinbase in New York federal court. To that end, it is trying to leverage a recent ruling in a separate case from a California court thousands of miles away from the current legal proceedings.
But lawyers told The Block that regulators’ legal strategy may not win.
“It’s a bit aggressive to say that there is case law that says crypto assets are securities based on insider trading incidents,” Terrence Yang, an attorney and managing director at Swan Bitcoin, told The Block.
Last June, the SEC sued Coinbase, accusing it of violating federal securities laws by offering unregistered securities in the form of digital tokens. The lawsuit is the latest in a series of complaints the agency has filed against cryptocurrency companies as the cryptocurrency industry seeks to expand its regulatory authority over the digital asset industry. Foreign funding opportunities.
Judge Katherine Polk Failla of the Southern District of New York is expected to soon issue a ruling on the issue of securitizing tokens in the current legal battle between Coinbase and the SEC. The decision could answer key questions in the regulatory debate. Should cryptocurrencies be classified as securities and fall under the purview of the SEC?
SEC using Wahi sequence
To support its view, the SEC this week used the judge’s ruling to create a new play to answer that question. This is a separate but tangential case.
In a letter filed with the court on Monday, the SEC asked Judge Failla to consider a ruling issued last Friday by Judge Tana Lin in Seattle in a separate insider trading case involving former Coinbase employee Ishan Wahi, who exploited his privileged knowledge. His brother Nikhil Wahi and his friend Sameer Ramani came up with the exchange to help him make profitable trades on the platform. According to that ruling, known as the Wahi Order, “the tokens traded (by the defendants in the insider trading case) were offered and sold as investment contracts and were therefore securities.”
The ruling came in the form of a summary judgment issued by a judge at the SEC’s request after one of the defendants, Wahi, failed to appear in court.
‘Limited’ value
coinbase But on Tuesday he hit back at the circumstances under which the judge made his decision, arguing in a letter to Judge Faila that the Wahi order “should not be given weightlessness.”
“The Wahi order was procured against an empty chair and its reasoning reflects as much,” the company’s attorneys said in the letter.
Teresa Goody Guillén, a partner at the BakerHostetler law firm, also argues that the insider trading case’s weight in the SEC’s massive lawsuit against Coinbase should be modest at best.
“Because it was a default judgment, its value or meaning was quite limited,” Guillén said. “There was no defense.”
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