Protocol | Tomio Geron and Fintech team | Jul 22, 2022
For years, the crypto industry has been in a state of confusion about which tokens are in fact securities and which are not. A case filed by the SEC alleging insider trading by a former Coinbase employee and two accomplices could provide some clarity — but it also threatens to roil the industry and Washington as the march to regulate digital assets continues.
SEC Power Play
In the complaint, the SEC argues that nine of the 25 tokens that the three individuals traded in are securities under the Howey Test, a longstanding judicial standard that would mean they should be regulated by the SEC.
The insider-trading complaint makes a direct case that nine tokens are securities: AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX and KROM. If a judge agrees, that would create a precedent to bring those nine tokens under SEC regulation, and would possibly apply to similar tokens.
Aside from the ongoing Ripple case, which was filed under a prior SEC chief, it’s the biggest move yet by Gensler’s SEC to regulate crypto through an enforcement action.
Behind-the-scenes struggle in Washington
More than one federal agency is seeking to regulate crypto: the CFTC, SEC, FinCEN, IRS, OCC and FDIC, among others.
CFTC Commissioner Caroline Pham called the SEC’s Coinbase case “regulation by enforcement” Thursday in a statement shared on Twitter. She appeared to take issue with the SEC seeking to have a judge deem these nine tokens securities. In the process, she shed light on her thinking about which tokens the CFTC might categorize as commodities under its oversight.
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