The attorneys for Ishan and Nikhil Wahi want the lawsuit dismissed, claiming the SEC was “wrong” to charge the couple.
A former Coinbase product manager has filed a motion to dismiss charges of suspected insider trading, alleging that the tokens he allegedly exchanged were not securities.
Lawyers for ex-Coinbase employee Ishan Wahi and his brother Nikhil Wahi filed a request in the United States District Court for the Western District of Washington on Feb. 6 to dismiss allegations brought by the Securities and Exchange Commission (SEC).
The SEC accused the brothers and their accomplice, Sameer Ramani, with insider trading in July of last year, saying that the trio gained $1.1 million by exploiting Ishan’s advice on the timing and names of tokens in impending Coinbase listings.
The attorneys explained how the SEC’s claims were “wrong” in an 80-page brief.
They said that the cryptocurrency purportedly sold by the Wahis did not meet the legal definition of a security because they lacked a “investment contract […] Written or implied,” and instead compared them to baseball trading cards and beanie babies.
They went on to explain that token developers have “no duties whatsoever” to buyers on secondary marketplaces, adding:
“With zero contractual relationship, there cannot be an ‘investment contract.’ It is that simple.”
The attorneys stated that the tokens were all utility tokens and that their principal purpose is on a platform rather than as an investment instrument.
“None of the tokens resembled stock […].” The goal of each coin was to stimulate activity on the underlying platforms, allowing each network to expand and thrive.”
The Wahi brothers and Ramani allegedly acquired at least 25 cryptocurrencies prior to the Coinbase listings — at least nine of which the SEC claims are securities — and then sold them for a profit shortly after their listing.
The Wahi attorneys chastised the SEC for attempting to “seize sweeping regulatory control over a vast new business via an enforcement action.”
“If the SEC truly believes digital assets are securities, it should participate in a rulemaking or other public action explaining that position and offering guidance to regulated parties on its consequences,” they stated.
Commodity Futures Trading Commission (CFTC) commissioner, Caroline Pham, has already voiced alarm about the possibly “wide ramifications” of the case.
She said that the SEC’s measures do not address the issue of whether some cryptocurrencies are securities in a “transparent” manner that establishes “proper policy with expert input.”
The Wahi brothers and Ramani were additionally charged with wire fraud and wire fraud conspiracy by the United States Attorney’s Office for the Southern District of New York.
In January, Nikhil pled guilty to the allegations and was sentenced to ten months in jail for wire fraud conspiracy. In August 2022, Ishan pled not guilty to the accusations. Ramani appears to be at large.
Ten attorneys from five different law firms signed the motion.
If District Judge Tana Lin denies the move to dismiss, the lawsuit will proceed.