The SEC (Security and Exchange Commission) has opened a new investigation against Coinbase. The latter aims to determine whether the American exchange platform has allowed its users to exchange unregistered assets. Since then, the company's stock has fallen almost 10%. Coinbase reacted.
Coinbase, accused of listing unregistered assets
The opening of a new investigation by the SEC is motivated by the suspicion that Coinbase has listed, on its platform, assets not registered with the American authorities. The American giant has, in fact, recently increased the number of tokens that can be traded on its platform.
Today, more than 150 cryptocurrencies are available for exchange there. Some of them are currently scrutinized by the American regulator.
SEC Chairman Gary Gensler said he considers many crypto assets as securities. The so-called Howey test makes it possible to identify the latter. This test, established by the United States Supreme Court in 1946, determines whether an asset meets the criteria for an investment contract.
If this is the case, this asset must be registered before being offered for exchange. This registration, with the American financial authorities, is part of the Securities Acts of 1933 and 1934.
According to them, an asset constitutes an investment contract if it calls for an investment of money, in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others. By "efforts of others" are understood, in particular, the action of burning tokens or the measures taken by the teams linked to a cryptocurrency project to support its value.
Note that this is a recent interpretation, defended by the SEC, of a law dating from the Great Depression, which obviously did not mention crypto-assets.
Today, the Howey test is brandished by the SEC to attest to the illegality of cryptos or the disrespect of the frameworks in force by exchange platforms.
Finally, it should be added that, according to the Howey Test, a decentralized autonomous organization (DAO) also includes the scope of application of the legislation relating to investment contracts. It must therefore also be subject to prior registration with the American financial authorities.
Coinbase was already in the sights of the SEC
This is not the first time that the SEC has scrutinized the exchange platform closely. The American company had also repeatedly criticized the actions taken by the regulator.
Additionally, on July 21, the SEC charged a former Coinbase employee with insider trading. Following the institution's investigation, the court for the Southern District of New York prosecuted three former exchange officials.
Finally, the court's decision was pronounced last Thursday. The three defendants were convicted of "conspiring to wire fraud in a scheme to commit insider trading."
Coinbase has cooperated with this investigation. In addition, the company dismissed the employees concerned, once the suspicions of fraud were confirmed. It should be noted that of the nine assets involved, only seven had been registered with the SEC.
From then on, this element alerted the authorities. At the same time, Coinbase has vehemently criticized the requirement to register securities with the regulator.
Coinbase reacts to these accusations
Today, the SEC accuses the exchange platform of having offered for trading, assets assimilated into undeclared securities. Paul Grewal, Chief Legal Officer at Coinbase reacted:
With all due respect, we strongly disagree with the SEC's decision to file these securities fraud charges and with the content of the charges themselves. None of the assets included in his charges are securities.
The SEC accusations have highlighted a significant problem: the United States lacks a clear and workable regulatory framework for digital asset securities.
And instead of crafting bespoke rules in an inclusive and transparent way, the SEC relies on these kinds of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those that are not securities.
The CEO of Coinbase had already criticized the SEC, whose behavior he described as summary. The investigation will follow its course and the outcome of the latter remains highly uncertain.
Indeed, the extensive interpretation produced by the SEC and the American courts of the 1933 law remains relatively opaque. Case to follow.
READ ALSO: Binance Now Holds More Bitcoin Than Coinbase
0 Comments