U.S. Court rules on crypto assets as securities in Coinbase insider trading case

A U.S. court has ruled that trading certain cryptocurrency assets on secondary markets, such as Coinbase, qualifies as securities transactions. This decision emerged from an insider trading case involving former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi, and their associate Sameer Ramani. According to the court’s judgment, the crypto assets in question meet the criteria of investment contracts under the Howey test, thereby classifying them as securities.

Financial Penalties and Regulatory Implications

The ruling was made in a default judgment against Sameer Ramani, who is believed to have fled the country to avoid facing criminal charges. This case marked a pivotal moment as it directly challenges the crypto industry’s and Coinbase’s argument that many cryptocurrencies do not constitute securities and, therefore, should not be under the jurisdiction of the Securities and Exchange Commission (SEC).

The SEC has previously settled charges with Ishan Wahi and Nikhil Wahi in what it described as the “first-ever insider trading case involving cryptocurrency markets.” The judgment against Ramani gains additional significance amid ongoing debates over the classification of cryptocurrencies and the regulatory scope of the SEC. SEC Chair Gary Gensler has consistently maintained that most cryptocurrencies are securities, implicating the need for crypto exchanges to register with the SEC.

The court’s decision also entails a prohibition against Ramani from committing future violations, alongside financial penalties. Ramani is ordered to pay a civil penalty amounting to twice his calculated illicit gains, totaling $1,635,204, and to disgorge the proceeds of $817,602. However, the request for prejudgment interest made by the SEC was denied.