REGULATION

US Court Rules on Coinbase Insider Trading Case: Cryptocurrency Sales on Secondary Market Deemed Securities Transactions

2024/3/6

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According to court documents, last Friday, a U.S. court issued a default judgment against one of the defendants who has fled the United States in the case involving alleged insider trading at Coinbase, stating that certain cryptocurrencies traded on secondary markets such as Coinbase are considered "securities."

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Judge: Trading of Cryptocurrency Assets on Secondary Market Constitutes Securities Trading

Court documents released on March 3 regarding the Coinbase insider trading case revealed that a judge from the Western District of Washington Court issued a Default Judgment against one of the defendants, Sameer Ramani, stating that trading of certain cryptocurrency assets on the secondary market constitutes securities trading.

The documents stated that the judgment was made due to Ramani's evasion of criminal prosecution by fleeing the United States and not appearing in court, taking the aforementioned crucial position in the default judgment:

Even though Ramani engaged in token trading on the secondary market, each participant still sought to emphasize the profitability of their tokens.

It added, "Therefore, according to the Howey test for determining investment contracts, all the cryptocurrency assets purchased and traded by Ramani are deemed investment contracts."

In July 2022, the press release from the Southern District of New York's prosecutor's office claimed that the case was the first insider trading case involving the crypto market, making it often compared to subsequent OpenSea NFT insider trading cases.

Furthermore, crypto companies, including Coinbase, often argue that many cryptocurrencies are not securities, making the above judgment significant for them.

Varied Views Among U.S. Judges

However, due to the unclear nature of U.S. cryptocurrency regulatory laws, there are differences among local judges regarding whether the sales of cryptocurrencies constitute unregistered securities.

In July of this year, Judge Analisa Torres ruled in the SEC v. Ripple $XRP case that Ripple Labs' sales of coins through exchanges, known as "programmatic sales," did not meet the Howey Test and thus did not fall under the category of securities.

However, their "institutional sales" did indeed make $XRP qualify as a security investment contract, leading to certain charges in the case awaiting a final court ruling.

Why SEC Has Not Surrendered Yet? Ripple Case Awaits Final Judgment, SEC Can Appeal Next Year

In addition, Judge Jed Rakoff in the SEC v. Terraform Labs case determined that the sales of UST, LUNA, wLUNA, and MIR all constitute securities.

Therefore, the SEC hopes to reference this ruling, claiming that BUSD is no different from UST, using it to support its allegations in the case against Coinbase involving the sale of unregistered securities:

Every cryptocurrency issuer may attract investors, including platforms like Coinbase, who expect the value of their assets to increase, which fits the definition of securities.

SEC Aims to Reference Terraform Labs Ruling for Victory in Binance and Coinbase Cases