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SEC Investigates Whether Coinbase Offers Unregistered Securities

The US Securities and Exchange Commission (SEC) is investigating whether Coinbase allows customers to trade unregistered securities. Bloomberg reported on July 26, citing three people familiar with the matter. Allegedly, the regulator started looking into Coinbase’s operations after the exchange listed new tokens.

At the moment, Coinbase lets Americans trade over 150 crypto tokens. Should the investigation find that some of these tokens are securities, Coinbase could have to register with the SEC.

However, Coinbase Chief Legal Officer Paul Grewal is confident that the SEC’s efforts are in vain. According to him, Coinbase boasts a stringent diligence process that prevents it from listing securities.

Despite Grewal’s reassurance, Coinbase’s stock, COIN, plunged by double digits. At the time of writing, COIN is down 21.08% to change hands at $52.93. This price represents a 78.92% drop year-to-date. 

SEC Has an Ongoing Case Against a Former Coinbase Employee

Before the agency started investigating Coinbase, it charged a former Coinbase employee and two other individuals with crypto insider trading. The charges targeted former Coinbase product manager Ishan Wahi, his brother, Nikhil Wahi, and his friend, Sameer Ramani.

The SEC alleges Ishan repeatedly tipped his brother and friend with the timing and content of upcoming listing announcements. This long-running scheme saw the trio make more than $1.1 million.

Allegedly, Nikhil and Ramani bought at least 25 assets following the tip-offs and sold them shortly after the listing announcements. The SEC believes at least nine of these assets were securities, explaining why it decided to start investigating Coinbase.

Coinbase Petitions the SEC to Create a Workable Regulatory Regime

After the SEC claimed Coinbase lists securities, the exchange petitioned the regulator to clarify rules. Coinbase argued that the lack of a clear regulatory regime prevents the trading of digital asset securities. The exchange further noted that it avoids listing securities to ensure regulatory compliance.

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The firm called out the SEC for failing to work with crypto market participants to forge a working regulatory framework and create new rules that facilitate the use of digital asset securities. Moreover, Coinbase faulted the SEC for taking an enforcement-first approach while addressing crypto regulatory challenges.

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