Chamber of Digital Commerce argues the SEC is overstepping its authority
Luisa Crawford Feb 26, 2023 09:33
The Chamber of Digital Commerce submitted an amicus brief asking the SEC to drop its case against former Coinbase employee Ishan Wahi for insider trading, alleging that the agency is trying to classify secondary market transactions as securities.
In the insider trading prosecution that the United States Securities and Exchange Commission is now conducting against former Coinbase workers, the SEC has once again been accused of going beyond the scope of its power and incorrectly classifying cryptocurrencies as securities.
The U.S.-based Chamber of Digital Commerce argued in an amicus brief that was filed on February 22 that the case should be dismissed because it represented an expansion of the SEC's "regulation by enforcement" campaign and seeks to characterize secondary market transactions as securities transactions. The Chamber of Digital Commerce argued that the case should be dismissed because it represented an expansion of the SEC's "regulation by enforcement" campaign.
"This case represents a stealthy, yet dramatic and unprecedented effort to expand the SEC's jurisdictional reach and threatens the health of the U.S. marketplace for digital assets," wrote Perianne Boring, founder and CEO of the Chamber of Digital Commerce. "This case represents a stealthy, yet dramatic and unprecedented effort to expand the SEC's jurisdictional reach."
The Chamber emphasized that "the SEC's encroachment into the digital assets market" was never authorized by Congress, and it noted that in other Supreme Court cases, it has been ruled that regulators must first be granted authority by Congress. The Chamber also highlighted the fact that the Supreme Court has ruled that regulators must first be granted authority by Congress.
On Twitter, the Securities and Exchange Commission (SEC) stated: "By operating without authority from Congress, [the SEC] continues to contribute to a chaotic regulatory environment, therefore endangering the same investors it is tasked to defend."
The Chamber also argued that the SEC was essentially asking the court to uphold that secondary market trades in the nine digital assets mentioned in an insider trading case against a former Coinbase employee constitute securities transactions, which the Chamber suggested was "problematic." The Chamber also argued that the SEC was essentially asking the court to uphold that secondary market trades in the nine digital assets mentioned in an insider trading case against a former Coinbase employee constitute securities transactions.
Perianne added, "We have serious concerns about the attempt by [the SEC] to label these tokens as securities in the context of an enforcement action against third parties who had nothing to do with creating, distributing, or marketing those assets." "We have serious concerns about the attempt by [the SEC] to label these tokens as securities."
In its brief, the Chamber made reference to the case LBRY v. SEC, in which the court decided that transactions using secondary markets would not be considered to be transactions involving securities.
The judge had been persuaded by a paper written by commercial contract attorney Lewis Cohen, which pointed out that no court had ever acknowledged the underlying asset was a security at any point since the landmark ruling in SEC v. W. J. Howey Co. — a case which set the precedent for determining whether or not a security transaction exists. The judge had been persuaded by the paper because it pointed out that no court had ever acknowledged the underlying asset was a security at any point since
The most recent amicus brief comes on the heels of a similar filing that was made on February 13 by an advocacy group called the Blockchain Association. That filing argued similarly that the SEC had exceeded its authority in the case and claimed that it was "the latest salvo in the SEC's apparent ongoing strategy of regulation by enforcement in the digital assets space."
An amicus curiae, sometimes known as a "friend of the court," is a person or organization that is not directly engaged in a lawsuit but that may be able to help the court by providing pertinent information or insights. This person or organization may submit an amicus brief.
The Securities and Exchange Commission (SEC) filed a lawsuit in July against Ishan Wahi, a former Coinbase Global product manager; his brother, Nikhil Wahi; and an associate, Sameer Ramani, alleging that the three had used confidential information obtained by Ishan to make gains totaling $1.5 million from trading 25 different cryptocurrencies. The lawsuit also names Sameer Ramani as a defendant.
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