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Crypto Trades on Coinbase Classified as Securities in Insider Trading Case

Last Updated March 4, 2024 11:11 AM
Teuta Franjkovic
Last Updated March 4, 2024 11:11 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • A US court ruled that trading certain crypto assets on secondary markets qualifies as a security transaction.
  • The court issued a default judgment against insider trading suspect Sameer Ramani.
  • This case adds to the ongoing debate about cryptocurrency regulation.

A US court has determined  that transactions involving specific crypto assets on a secondary market qualify as securities transactions.

A default judgment  against Sameer Ramani, who is among three people implicated in an insider trading lawsuit, set this precedent.

Crypto Trades Classified as Securities Transactions in Coinbase Insider Trading Case

In the lawsuit , concerning Coinbase’s ex-product manager Ishan Wahi, his brother Nikhil Wahi, and their associate Sameer Ramani, an American court declared on March 1 that transactions of specific crypto assets on secondary markets, such as Coinbase, constitute securities transactions.

According to the ruling :

“The court’s analysis remains the same even to the extent Ramani traded tokens on the secondary market. Each issuer continued to make such representation regarding the profitability of their tokens even as the tokens were traded on secondary markets. Thus, under Howey, all of the crypto assets that Ramani purchased and traded were investment contracts.”

Default Judgment in Landmark Crypto Insider Trading Case

The court issued a default judgment against Ramani. Default judgments occur when defendants does not respond to a court summons or fails to show up in court. According to the court filing, “Ramani seems to have left the country to evade criminal prosecution for the alleged activities in this case.”

In May 2023, the SEC reached settlements  with Ishan Wahi and Nikhil Wahi in what it described as the “first-ever insider trading case involving cryptocurrency markets.”

The recent default judgment against Ramani gains additional importance in the context of ongoing debates within the crypto industry and Coinbase (COIN) regarding the classification of cryptocurrencies.

Landmark Judgment Affirms SEC’s Stance on Cryptos as Securities

The industry and Coinbase have consistently argued cryptocurrencies are not securities and, therefore, fall outside the SEC’s jurisdiction. However, SEC Chair Gary Gensler has frequently contended that most cryptocurrencies are securities, advocating for crypto exchanges to register with the regulator.

This case is not the first time a US court determined whether the sale of cryptocurrencies constitutes unregistered securities transactions. In July 2023, Federal District Judge Analisa Torres found Ripple breached federal securities laws by selling XRP directly to institutional investors, but not in making XRP available to retail customers through exchanges. Conversely, in December, Judge Jed Rakoff provided a contrasting opinion in the Terraform Labs case, challenging Judge Torres’s decision.

The court imposed a civil penalty of $1,635,204, double the proceeds Ramani illegally earned. Additionally, the court ordered the disgorgement of the identified proceeds, which amounted to $817,602. However, the court rejected the SEC’s request for the imposition of prejudgment interest.

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