The United States Securities and Exchange Commission (SEC) has again been accused of overstepping its authority and unfairly labeling crypto assets as securities, this time in an insider trading case against a former employee of Coinbase.
In an amicus brief filed on February 22, the US-based Chamber of Digital Commerce said the case should be thrown out because it represents an expansion of the SEC’s “regulation by enforcement” campaign and an effort to characterize secondary market transactions as securities transactions.
We have serious concerns about the SEC’s efforts to label these tokens as securities in the context of enforcement actions against third parties unrelated to the creation, distribution or marketing of these assets. This is not a healthy policy making process. Dump it! https://t.co/06WAJ65Ckl
– Perianne (@PerianneDC) February 22, 2023
“This case is a stealthy, yet dramatic and unprecedented attempt to expand the SEC’s area of jurisdiction and threaten the health of the US market for digital assets,” wrote Perianne Boring, founder and CEO of the Digital Chamber of Commerce.
The chamber highlighted the “SEC’s intrusion into digital asset markets” was never authorized by Congress, and noted in other Supreme Court cases that have ruled that regulators must first be authorized by Congress.
“By acting without the authority of Congress, [the SEC] continues to contribute to a chaotic regulatory environment, harming investors who should be protected,” he wrote on Twitter.
The chamber also confirmed that in order to make securities fraud claims, the SEC actually asked the court to maintain secondary market trading in the nine digital assets mentioned in The insider trading case against a former Coinbase employee was a securities transaction, which he suggested was “problematic.”
This novel is tried by @SECGov to impose securities regulations through the “back door” of insider trading actions raises serious concerns because the process & will cause various consequences that will harm investors and threaten digital assets. So, it should be thrown away!
– Digital Chamber of Commerce (@DigitalChamber) February 22, 2023
“We have serious concerns about it [the SEC’s] trying to label these tokens as securities in the context of enforcement actions against third parties that have nothing to do with the creation, distribution or marketing of these assets,” added Perianne.
The chamber cited the case of LBRY v SEC in brief, where the judge had ruled that secondary market transactions would not be defined as securities transactions.
The judge has been persuaded by a paper from a commercial contract lawyer Lewis Cohen, who pointed out that no court has ever recognized the underlying asset as a security at any point since the landmark SEC v WJ Howey Co. regulate – a case that sets a precedent to determine whether there is a security transaction.
The latest amicus brief follows a similar filing from the advocacy group Blockchain Association on February 13, which stated that the SEC had exceeded its authority in the case and claimed it was “the latest salvo in the SEC’s regulatory strategy seen with enforcement in the digital asset space.”
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An amicus brief may be filed by an amicus curiae, or “friend of the court,” which is an individual or organization not involved in the case but who can assist the court by providing relevant information or insight.
The SEC sued former Coinbase Global product manager Ishan Wahi, brother Nikhil Wahi, and associate Sameer Ramani in July 2022, alleging that the trio used confidential information obtained by Ishan to generate $1.5 million from trading 25 different cryptocurrencies.