Coinbase Files Amicus Brief in Insider Trading Case: ‘We Need Rulemaking’

Coinbase stated in an amicus brief filed on Monday that while the digital assets it offers are not securities, the company would be interested in listing securities if given sufficient direction and rules from the Securities and Exchange Commission. According to the brief, however, the SEC’s willingness to cooperate with the exchange has been minimal.

As part of its legal action against former employee Ishan Wahi, Coinbase submitted a “amicus,” or “friend of the court,” brief. The SEC has filed a civil lawsuit against Wahi and his brother for securities fraud and insider trading in connection with the disclosure of upcoming Coinbase token listings.

Wahi has admitted guilt for insider trading, but he is denying the SEC’s allegations of securities fraud by claiming the tokens in question were not securities and asking that the case be dropped. Insiders say Coinbase’s filing of the amicus brief is an attempt to remove the SEC from what should be a criminal investigation, and not a signal of support for Wahi.

The SEC’s lawsuit is based on the fallacy that the seven assets listed on Coinbase that are the subject of the complaint are in fact “securities.” “But, Coinbase does not list any securities on its site,” the company said in its brief. The SEC claims cryptocurrencies are securities because they are “investment contracts,” but these tokens don’t meet the definition of a security under federal law because they are neither contracts nor investments.

The Blockchain Association, a trade association, submitted an amicus brief to the court in the middle of February. The group claimed that the United States is not an attractive country for the digital assets industry because of the SEC’s history of regulation and enforcement.

It contended that “such behavior is illegitimate for a government agency, and is inconsistent with due process concerns” in its brief. The SEC’s goal is to set a precedent that can be used in future cases, as it has done in previous ones when the Department of Justice (DOJ) filed suit and the SEC joined in by filing similar charges of violations of securities laws against unknown third parties.

Coinbase echoed the Blockchain Association in stating that the SEC has been inconsistent with its own prior pronouncements, failed to respond to petitions submitted by Coinbase in the past, and otherwise failed to provide clear direction.

According to Coinbase’s docket, the agency’s decision to move forward with enforcement “violates bedrock principles of due process and fundamental fairness,” which prohibit the agency from punishing regulated parties without first providing the regulatory clarity necessary for those parties to understand their legal obligations.

Coinbase claims the SEC is not following the notice and comment rulemaking procedure that Congress mandated for agencies like the SEC. Rulemaking is “the only practical approach” for the SEC to “give fair notice to affected parties and coherently address all relevant aspects of governing the crypto business,” the docket states.