Coinbase pushed back on claims from the Securities and Exchange Commission that it offers unregistered securities, following fraud charges against a former employee of the company.
An ex-Coinbase product manager was charged Thursday, along with two other individuals, with wire fraud in connection with an alleged insider trading scheme involving cryptocurrencies. The case is the first of its kind.
U.S. prosecutors accused the individuals of plotting to profit from the listing of new tokens on the Coinbase platform before they were announced publicly.
In a separate complaint filed Thursday, the SEC said that nine of the 25 tokens allegedly traded in the scheme were securities.
Coinbase’s chief legal officer, Paul Grewal, denied the claims Thursday in a blog post titled “Coinbase does not list securities. End of story.”
“Seven of the nine assets included in the SEC’s charges are listed on Coinbase’s platform,” Grewal said in the blog post. “None of these assets are securities.”
“Coinbase has a rigorous process to analyze and review each digital asset before making it available on our exchange — a process that the SEC itself has reviewed.”
Whether some cryptocurrencies should be considered securities is a contentious matter that has flustered both regulators and crypto firms alike.
Ripple, a San Francisco-based blockchain firm, is currently fighting a lawsuit from the SEC which claims XRP, a cryptocurrency it is closely associated with, should be treated as a security.
It goes back to a notable Supreme Court case known as the Howey Test, which deems an asset as a security if it meets certain criteria. According to the SEC, a security is defined as “an investment of money, in a common enterprise, with a reasonable expectation of profit derived from the efforts of others.”
The SEC’s position is significant as it means Coinbase may be forced to classify some of the cryptocurrencies it offers as regulated financial instruments.
The process of listing securities, such as shares in a company, involves rigorous disclosure and registration requirements. Cryptocurrencies, by contrast, are unregulated and therefore don’t come with the same level of scrutiny.
Coinbase has been known to be more conservative with its token listing framework than some other exchanges. Both Binance and FTX offer more than 300 coins, for example, while Coinbase lists just over 200, according to CoinGecko data.
Nevertheless, the SEC believes the company is hosting unregulated securities on its platform, a claim that Coinbase denies.
Caroline Pham, commissioner of the Commodity Futures Trading Commission, also weighed in on the case Thursday, calling the SEC securities fraud charges a “striking example of ‘regulation by enforcement.'” The CFTC oversees foreign exchange trading.
“The SEC’s allegations could have broad implications beyond this single case, underscoring how critical and urgent it is that regulators work together,” Pham said in a statement. “Regulatory clarity comes from being out in the open, not in the dark.”
Coinbase’s Grewal concurred with Pham’s assessment.
“Instead of crafting tailored rules in an inclusive and transparent way, the SEC is relying on these types of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those assets that are not securities,” he said in the blog post.
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