Crypto Exchange Coinbase Reportedly Facing SEC Securities Investigation

Cryptocurrency exchange Coinbase is reportedly facing an investigation by the U.S. Securities and Exchange Commission (SEC) over whether users are allowed to trade unregistered securities, according to a report by Bloomberg. The SEC’s investigation has not yet been made public.

Sources close to the situation told Bloomberg that the SEC began to take a closer look at Coinbase’s practices after the exchange added more than 100 additional tokens to its platform, including Dogecoin, the prank cryptocurrency based on the Shiba Inu meme. These types of coins usually do well after they are first listed, but they are very volatile and their value usually evaporates over time.

This investigation is separate from the SEC’s case against former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi and his friend Sameer Ramani. The agency accused the three of insider trading earlier this month, claiming that Ishan “repeatedly tipped the timing and content of upcoming offer announcements” to his brother and friend, resulting in a profit of more than $1.1 million. It also claims that Nikhil Wahi and Ramani “purchased at least 25 crypto assets, including at least nine securities.”

Paul Grewal, the chief legal officer at Coinbase, disputes the SEC’s claims about the listing of securities on Coinbase in a statement on Medium, citing that the Justice Department has not filed any security fraud charges against Coinbase when suing. of Nikhil Wahi, Ishan Wahi and Sameer Ramani for insider trading. Grewal states that “none” of the assets referenced in the SEC’s charges are considered securities.

“Coinbase has a rigorous process of analyzing and reviewing every digital asset before it is made available on our exchange — a process that the SEC has reviewed itself,” Grewal writes. “This process includes an analysis of whether the asset qualifies as a security, and also considers regulatory compliance and information security aspects of the asset.”

In general, a security is a negotiable financial asset that has monetary value and must be registered with the SEC. The tricky thing about crypto, however, is not all digital assets are considered securities. In 2018, former SEC chairman Jay Clayton told CNBC that cryptocurrencies that replace “sovereign currencies”, such as Bitcoin and Ether, are not securities — but digital assets and tokens used in initial coin offerings (ICOs).

If this sounds confusing, that’s because it is. Last week, Coinbase filed a petition with the SEC (pdf) to clarify exactly what it considers a security, claiming that the US lacks “a clear and workable regulatory regime”. Coinbase states that the SEC is taking an “enforcement-first” approach, rather than establishing a set of rules that companies must adhere to.

“We believe that our rigorous due diligence process – one that the SEC has already reviewed – keeps securities off our platform, and we look forward to discussing this with the SEC,” Grewal writes on Twitter.

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