Monday, February 10, 2025
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The Securities and Exchange Commission (SEC) filed a complaint and opened an investigation against several Coinbase employees for alleged insider trading.

In the complaint, the SEC also alleges that the two workers “allegedly purchased at least 25 cryptoassets – at least nine of which were securities – and then typically sold them shortly after the announcements for profit. The long-running insider trading scheme generated illegal profits totaling more than $1.1 million.”

Investigating insider trading is significant in its own right, especially as market manipulation becomes a leading focal point for regulators and policymakers. However, the specificity of having (at least) nine securities involved in this case is what is really causing industry-wide concern.

Coinbase shares fell over 7% after news of the SEC charges broke. For the company, this investigation is something of a worst-case scenario as it has had ongoing difficulties with the primary US securities regulator.

September will mark the anniversary of the SEC issuing Wells’ notice after Coinbase asked it to exit its proposed Lend product. Wells notices essentially tell companies or individuals that the regulator intends to take enforcement action against them. Of course, Coinbase shut Lend down after receiving Wells’ notice, but not without significant public outcry against the SEC.

For several years, there have been repeated requests from the SEC to provide the crypto-asset industry with stronger guidance on what the agency considers a value.

Many leaders in both the private and public sectors have decried the ongoing trend of “regulation by enforcement,” where regulators impose fines or take legal action against companies without providing the necessary regulatory guidance at all. In fact, on the same day the SEC filed its insider trading complaint, Coinbase filed its own petition with the agency.

Coinbase’s Rulemaking Petition – Digital Securities Regulation requests that “the Commission propose and adopt rules to regulate securities offered and traded through digitally-sourced methods, including potential rules to identify which digital assets are securities” .

Once again, industry leaders asked the agency to issue clearer rules of the road to avoid retroactive penalties. Coinbase notes in the letter that it has specifically steered clear of any crypto-assets that closely represent securities. Coinbase did this for exactly this reason – to avoid being accused of violating securities laws.

Gurbir S. Grewal – Director of the SEC’s Division of Enforcement – ​​stated in a press release: “In this case, that reality confirms that a number of the cryptoassets at issue are securities and, as alleged, the defendants engaged in typical insider trading Before listing them on Coinbase, rest assured, we will continue to ensure a level playing field for investors – regardless of the label placed on the securities involved.

The press release continues to state that “the SEC’s complaint – filed in federal district court in Seattle, Washington – charges Ishan Wahi, Nikhil Wahi and Ramani with violating the anti-fraud provisions of the securities laws and seeks a permanent injunction, disgorgement with prejudgment interest and civil penalties. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against all three individuals.”

Now, Coinbase – and the entire industry – must wrap their heads around the imminent battle with the SEC.

The UK Law Commission is proposing rules on digital assets

The Law Commission of England and Wales has published its consultation document on updated regulations for digital and cryptoassets at the request of the UK government. The first seeks public comment on its document from technologists, legal experts, users and various other stakeholders from across the region.

In the consultation document, the Law Commission points out that very few substantive changes to the law as it currently stands are actually recommended. The organization made this decision because it believes that most current statutes are flexible enough to adapt or encompass current and any future technological innovations surrounding digital assets. In addition, it does not want to stifle innovation by being overly strict in its legal and regulatory frameworks and by not allowing new digital asset technologies.

Of the changes the Commission is recommending, a particular focus is on the intersection of digital property and “private personal property law.” He explains this significant emphasis due to the fact that “property rights are important for the proper characterization of a number of modern and complex legal relationships, including guardianship relationships, collateral arrangements and structures involving trusts.

They are also important in cases of bankruptcy or insolvency where property rights have been interfered with or unlawfully taken, as well as for legal rules relating to succession after death. Property rights are useful because, in principle, they are recognized against the whole world, while others – personal – are recognized only by those who have undertaken the relevant legal duty.

Below are the primary recommendations released by the Commission:

  • “Explicit recognition of a ‘third’ category of personal property distinct from things in possession and things in action, which would allow for a more nuanced consideration of new, emergent and idiosyncratic objects of property rights. We refer to this category as “data objects”.
  • We tentatively propose certain criteria that a thing must exhibit in order to fall into our proposed third category of personal property.
  • We tentatively conclude that the factual concept of control (as opposed to the concept of possession) best describes the relationship between data objects and persons.
  • We provisionally conclude that crypto-tokens meet our proposed data object criteria and are appropriate objects of ownership rights. We analyze factual transfers of crypto-tokens (as a subset of data objects) and tentatively propose that the derivative ownership transfer rules may apply to such transfers, including in the context of crypto token misappropriation.
  • We are temporarily proposing to explicitly clarify that the special defense of a bona fide buyer for value without notice should apply to crypto-token transactions.”

Read more about the new proposals of the Legal Commission here.

The US Treasury is stalling on stable notes

The long-awaited regulation proposed by the stablecoin has stalled after Treasury Secretary Janet Yellen raised concerns with House Financial Services Committee Chairwoman Maxine Waters. Secretary Yellen raised potential flags about “how [the proposed bill] addressed digital assets held in custody on behalf of consumers. The Treasury has sought changes that would require digital wallet providers to keep client assets segregated — ensuring they are preserved in the event of insolvency, according to one source familiar with the discussions.”

The bill is being negotiated by Waters and Republican Rep. Patrick McHenry. And both representatives are eager to reach a consensus ahead of the upcoming August recess in Congress. Between the President’s Task Force investigation and the recent UST meltdown, stablecoins have remained a top priority for lawmakers.

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