Signage for Coinbase in New York’s Times Square during the company’s initial public offering on the Nasdaq on April 14, 2021.
Robert Nickelsberg | Getty Images
Coinbase has rejected claims by the Securities and Exchange Commission that it offers unregistered securities, following fraud charges against a former company employee.
A former Coinbase product manager was charged Thursday along with two others with wire fraud in connection with an insider trading scheme involving cryptocurrencies. The case is the first of its kind.
US prosecutors accused the individuals of conspiring to profit from the listing of new tokens on the Coinbase platform before they were publicly announced.
In a separate complaint filed Thursday, the SEC said nine of the 25 tokens allegedly traded in the scheme were securities.
Coinbase Chief Legal Officer Paul Grewal denied the claims Thursday in a blog post titled “Coinbase does not include 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 issue that has baffled both regulators and crypto companies.
San Francisco-based blockchain company Ripple is currently fighting an SEC lawsuit that claims XRP, a cryptocurrency with which it is closely associated, should be treated as a security.
It goes back to a notable Supreme Court case known as the Howey test, which considers an asset 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 arising from the efforts of others.”
The SEC’s position is significant because 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 a company’s shares, involves rigorous disclosure and registration requirements. Cryptocurrencies, on the other hand, are not regulated and therefore do not have the same level of scrutiny.
Coinbase is 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 data from CoinGecko.
However, the SEC believes the company hosts unregulated securities on its platform, a claim Coinbase denies.
Caroline Pham, commissioner of the Commodity Futures Trading Commission, also weighed in on the case Thursday, calling the SEC’s securities fraud charges a “stunning example of ‘regulation by enforcement.'” The CFTC oversees currency trading .
“The SEC’s allegations could have broad implications beyond this single case, underscoring how critical and urgent it is for regulators to work together,” Pham said in a statement. “Regulatory clarity comes from being out in the open, not in the dark.”
Coinbase’s Grewal agreed with Pham’s assessment.
“Instead of crafting tailored rules in an inclusive and transparent manner, the SEC relies on these types of one-off enforcement actions to try to bring all digital assets under its jurisdiction, even those assets that are not values,” he said.