Coinbase Files Amicus Brief in Insider Trading Case: ‘We Need Rulemaking’

The digital assets that Coinbase lists are not securities, but Coinbase, if given proper guidance and rules from the Securities and Exchange Commission, would like to list securities, Coinbase said Monday in an amicus brief. But the SEC’s willingness to work with the exchange in a productive fashion has been limited, the brief reads.

Coinbase filed the amicus, or friend of the court, brief as part of a case against its former employee Ishan Wahi. Wahi, along with his brother, has been charged with insider trading and is the subject of a civil complaint by the SEC for securities fraud regarding leaking information about new token listings on Coinbase.

While Wahi has pleaded guilty to the insider trading charges, he is contesting the SEC’s allegations of securities fraud, arguing the tokens in question were not securities and pushing for the case to be dismissed.

Coinbase's filing of the amicus brief should not be read as a signal of support for Wahi, insiders say, but rather an attempt to force the SEC out of what should be a criminal case.

“The SEC’s suit rests on the erroneous premise that the seven Coinbase-listed assets identified in its complaint are ‘securities.’ But Coinbase does not list any securities on its platform,” Coinbase’s brief reads. “The SEC posits that the digital assets qualify as securities because they are “investment contract[s], but the assets lack both essential attributes of that statutory term: They are neither contracts nor investments.”

In mid-February, the Blockchain Association trade group also filed an amicus brief in the case. The group argued that prior regulation by enforcement via the SEC has made the U.S. an opaque and confusing jurisdiction to do business in for the digital assets industry.

“Such behavior is improper for a government agency, and is irreconcilable with due process concerns,” it argued in its brief. “The SEC’s motive, then, is merely to backdoor a precedent that can be used in other cases, as, indeed, it is already doing in other cases where the DOJ has brought an action, and the SEC has piled on with similar allegations of securities laws violations against absent third parties.”

Coinbase also brought forward a similar argument to the Blockchain Association’s, arguing the SEC has failed to provide clear guidance, has deviated dramatically from its own earlier statements and has previously ignored petitions filed by Coinbase.

“Proceeding with enforcement in these circumstances violates bedrock principles of due process and fundamental fairness, which bar an agency from seeking to punish regulated parties without providing the regulatory clarity necessary to discern their legal obligations,” Coinbase’s brief reads.

Coinbase accuses the SEC of refusing to follow the guidance Congress has set out for these agencies, namely the process of “notice-and-comment rulemaking.”

“Rulemaking is the only realistic way in which the SEC can provide fair notice to affected stakeholders and coherently consider all important aspects of regulating the crypto industry,” the brief reads.

Wahi is due back in court on March 22.