SEC’s Coinbase Insider Trading Case Is ‘Backdoor Rulemaking,’ Trade Association’s CEO Says

The Chamber of Digital Commerce is trying to stop a case brought by the U.S. Securities and Exchange Commission (SEC) against a former Coinbase (COIN) employee accused of insider trading. The organization’s founder, Perianne Boring, said if the SEC succeeds, many digital assets could be defined as securities.

“We see this action as seriously concerning and would have significant ramifications for the entire digital asset industry,” Boring said Friday on CoinDesk TV’s “First Mover” about the group's “friend of the court” (amicus) brief in the SEC action before the U.S. District Court in Washington, D.C.

Last year, the U.S. Department of Justice (DOJ) charged former Coinbase manager Ishan Wahi with wire fraud for sharing information with his brother, Nikhil Wahi, and friend Sameer Ramani regarding which tokens would be listed on the crypto exchange’s platform before they went live.

The SEC swiftly followed suit, charging the trio with the same insider trading allegations. According to Boring, the SEC “piggybacked” on the DOJ case, essentially “latching onto a third party who had nothing to do with the issuance of these tokens.”

At a time when crypto companies find themselves in a tussle with regulators, Boring said what the SEC is doing is another example of regulating by enforcement and does nothing to define “what sort of digital asset transactions it considers to be securities transactions.”

If the court rules in favor of the SEC, nine of the supposed 25 crypto assets the trio purchased and sold could be defined as securities. This could lead to further legal battles for other crypto companies that list the tokens, she said.

That's why her group filed the amicus brief, arguing that the SEC’s crackdown is a form of “backdoor rulemaking.”

Binance, the largest crypto exchange in the world and itself in the crosshairs of U.S. regulators, is among one of the contributors to the association’s legal filing.

Attempts to dismiss SEC case

Earlier this month, Wahi pleaded guilty to insider trading charges, while his brother Nikhil pleaded guilty to wire fraud conspiracy charges. Wahi’s lawyers, however, have since filed a motion to dismiss the SEC’s securities fraud charges, claiming the tokens listed were utility-based and not investment contracts.

The SEC’s Wahi case could be redundant, in part because “they’ve already been indicted by the DOJ,” Boring said. Still, in “no way, shape or form,” is the trade association “trying to downplay the seriousness of insider trading” she said.

“I want to be super-clear that anyone who breaks the laws, breaks just basic code of ethics, we should absolutely enforce against those individuals,” Boring said, adding that the DOJ’s case would have “absolutely nothing to do with the punishments” Wahi and his counterparts face.

Nonetheless, “a ruling that embraces the SEC’s position and endorses its tactics could have negative implications for the digital asset ecosystem,” Boring said.

She added the only regulatory guidance provided by the SEC has been in “the form of nonbinding speeches and statements that have been conflicting from administration to administration.”

CoinDesk reached out for comment from the SEC but did not hear back by the time of publication.

Read more: As SEC Leans on Enforcement to Regulate, Crypto Lawyers Study Every Word / News Analysis