Insider trading case revives tussle between SEC and Coinbase over securities

Yesterday, a former Coinbase product manager was one of three people to be charged by the DoJ in the first ever cryptocurrency insider trading tipping scheme.

While the DoJ charges do not mention securities, separate SEC charges do. Of the 25 crypto assets that the defendants allegedly purchased with insider information, "at least nine" were securities, says a statement from the watchdog.

"We are not concerned with labels, but rather the economic realities of an offering," says Gurbir Grewal, director of the SEC’s division of enforcement. "In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase."

In response, Coinbase chief legal officer Paul Grewal has posted a blog entitled: "Coinbase does not list securities. End of story."

Writes Grewal: "The DOJ reviewed the same facts and chose not to file securities fraud charges against those involved. As CFTC Commissioner Caroline Pham stated, this is “a striking example of ‘regulation by enforcement’” by the SEC."

The charges mark the latest development in a long-running tussle between regulators and crypto exchanges over what constitute securities.

The SEC is involved in a lawsuit with Ripple over whether XRP is a security, while Coinbase itself was forced last year to ditch a planned interest-earning product after the watchdog said it considered it to involve a security.

At the time, Coinbase CEO Brian Armstrong accused the SEC of some "really sketchy behavior".

In what he writes is a coincidence, Grewal now says that Coinbase has filed a petition for rule making with the SEC calling for "actual rule making so the crypto securities market has a chance to develop. We worry that today’s charges suggest the SEC has little interest in this most fundamental role of regulators."