The US regulator SEC had classified 9 altcoin projects as securities in an insider trading lawsuit against a former Coinbase executive. In a recent development, lawyers are objecting to the SEC’s sanction decision for these altcoins.
Coinbase lawyers oppose the decision for these altcoins
Nine altcoins traded on Coinbase were featured by the regulator in an insider trading lawsuit filed against a former executive at the company. The crypto market wants to resolve the question of which cryptocurrencies can be regulated as securities by the SEC and which can be commodities regulated by the Commodity Futures Trading Commission (CFTC). Meanwhile, the SEC is slowly answering this question with new sanctioned tokens.
Attorneys for former Coinbase employee Ishan Wahi argued this week that the tokens are not securities. They stated that the SEC should not use a person’s enforcement action to decide “how important legal questions concerning all markets should be resolved.”
The lawsuit states that the SEC is “trying to seize broad regulatory jurisdiction over a huge new market through an enforcement action against a 32-year-old former Coinbase employee and her younger brother.” The basis for the SEC’s motion to dismiss its charges is that Flexa’s various tokens, including AMP, RLY, POWR, and LCX, do not qualify under the legal definitions of securities. The list of related cryptocurrencies that were sanctioned in July 2022, which we quoted as Kriptokoin.com:
- Amp (AMP)
- Rally
- DerivaDAO (DDX)
- XYO Network (XYO)
- Rari Governance (RGT)
- LCX (LCX)
- Power Ledger (POWR)
- DFX Finance (DFX)
- Chromatica (CHROM)
Will lawyers be able to persuade the SEC?
The court filing alleges that altcoin investors did not invest their money in a “startup”, but simply bought assets from a third party. However, crypto commentator Bennett Tomlin noted on Twitter that the argument that altcoins are not based on the assets behind them is “weak”, suggesting, for example, that “LCX relies too heavily on LCX dot-com”.
Is it actually true that the tokens in the Wahi case can operate without a centralized intermediary? pic.twitter.com/AQdR6UGhOR
— @[email protected] (@BennettTomlin) February 7, 2023
Another project, Rally, shut down all sidechain networks last week and destroyed users’ NFT tokens, but the RLY token itself appeared unaffected.
“In the absence of a concrete cryptocurrency securities regulatory framework from the SEC, we are confident that Coinbase’s rigorous review process keeps securities off the Coinbase platform,” Paul Grewal, Coinbase chief legal officer, wrote in a blog post from the SEC last year.
What do the experts following the case say?
Patrick Araugerty, a lawyer who works for the SEC and currently represents crypto clients at Foley and Lardner in Chicago, wrote the latest filing, “An extremely good statement of attorney objections to the progressive left power usurpation that we are sadly witnessing in the current SEC leadership.” described as.
At the same time, Daugherty, who teaches crypto at Cornell University’s law school, said, “We can hope that the new chairman of the House Financial Services Committee will have some control over this rebellious federal agency and that lower federal courts will acknowledge an abuse of power when pointed out to them.”
Still, lawyers representing the crypto market are scrutinizing the agency’s claims that cryptocurrencies fall within the securities group. This situation rose again recently when the SEC labeled FTX’s exchange token FTT as a security, raising broader concerns that similar tokens issued by platforms like Binance would be considered securities with the same logic.
SEC chairman Gary Gensler mandates security status for altcoins
“I believe the vast majority of the approximately 10,000 projects in the crypto market are securities,” Gensler said last year. Bitcoin (BTC) is the only cryptocurrency that the SEC freely admits does not fall into this category.
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