Coinbase Insider Trading Judge: Cryptocurrencies are Securities

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  • A federal judge in the Coinbase insider trading case has affirmed that crypto assets are securities, despite trading on Coinbase’s secondary market
  • This lawsuit could set a precedent, conflicting with findings in the SEC vs. Ripple case and others on the same issue
  • The ruling adds complexity to crypto regulation, sparking calls for a unified, comprehensive legal decision.

A federal judge recently affirmed the Securities and Exchange Commission’s (SEC) jurisdiction over crypto assets as securities in the case against the Coinbase insider traders, despite their trading on Coinbase’s secondary market. The lawsuit may set a precedent for current and future legal battles as it opposed findings made in the case between the SEC and Ripple, as well as other cases that revolve around the same issue. The finding merely serves to cloud the waters over crypto regulation even further and will renew calls for a single, comprehensive ruling.

Secondary Market Tokens Count as Securities

The SEC started proceedings against the accused, Sameer Ramani, and his co-conspirators, brothers Nikhil and Ishan Wahi, in 2022, alleging that Ishan, who worked for Coinbase, repeatedly tipped the others off about coin listings, allowing them to buy up large amounts of the coins in question and sell them when the price jumped on news of the listing.

Judge Tana Lin in the Western District Court of Washington issued a ruling in the case against Ramani on Friday, partially granting the SEC’s request for a default judgment, but it was another element of her ruling that may have wider significance: Judge Lin ruled that the crypto assets involved were deemed securities, despite being traded on Coinbase, a secondary market.

Not Good News for Coinbase

This decision is noteworthy as it aligns with SEC Chair Gary Gensler’s stance that the majority of the crypto industry’s activities fall under its regulatory purview, marking strong judicial support for Gensler’s argument. It will also not be good news for Coinbase, which is being sued by the SEC on the basis that it sold securities without a license.

This ruling is significant as it addresses secondary transactions, unlike previous rulings primarily involving direct sales from issuers. The outcome of these cases could potentially culminate in a Supreme Court decision on whether crypto assets should be classified as securities, something that the industry needs at this point in order to bring clarity to everyone in the industry one way or the other.