The crypto industry is currently going through a crisis that has already crushed some major players like hedge fund Three Arrows Capital and lenders Celsius Network and Voyager Digital.
After losing over $2 trillion in less than nine months, the cryptocurrency market has more or less stabilized in recent days. But it was also around this time that bad news was issued by the United States Securities and Exchange Commission.
The regulator announced that nine cryptocurrencies listed on Coinbase (PIECE OF MONEY) – Get the Coinbase Global Inc report exchange, the most popular platform in the United States, are unregistered securities.
This decision, which took the industry by surprise, has significant repercussions because tokens or coins have until now been considered non-securities. This means that they escape the strict scrutiny of regulators and are not subject to the same rules of financial transparency and disclosure as the shares of a company, for example. The registration process is also less strict than that of a title.
The SEC causes an uproar
A security is, according to the SEC, “an investment of money, in a common enterprise, with a reasonable expectation of profit from the efforts of others.”
The announcement came as the SEC and Justice Department filed charges against former Coinbase chief product officer Ishan Wahi and two others, accusing them of running an insider trading scheme that earned them over $1.1 million. Wahi reportedly informed his brother Nikhil Wahi and his friend, Sameer Ramani, about the upcoming token listing announcements on the crypto exchange.
“Prior to these announcements, which typically resulted in higher asset prices, Nikhil Wahi and Ramani reportedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them soon after the announcements for a profit. “, declared the SEC on July 21.
The nine tokens in question are: AMP from Flexa, RLY from Rally, DDX from DerivaDEX, XYO from XY Labs, RGT from Rari Capital, LCX from Liechtenstein Cryptoassets Exchange, POWR from Power, DFX from DFX Finance and the KROM of Kromatika Finances.
“Each of the nine companies invited people to invest on the promise that they would make future efforts to improve the value of their investment,” the SEC argued. The regulator wants to refer to the famous judgment of the Supreme Court, known as the Howey Test, which considers an asset to be a security if it meets certain criteria.
The SEC’s decision drew a torrent of criticism from industry, other regulators and lawmakers.
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Coinbase, which could be penalized by the SEC for listing the nine tokens, said in a blog post that it had filed a petition with the SEC to improve “digital asset securities rulemaking.” to say how it would apply federal securities laws to crypto assets. .
“The SEC v. Wahi case is a stark example of ‘regulation by enforcement,'” Caroline Pham, commissioner of the Commodity Futures Trading Commission, said in a statement posted on Twitter.
‘Do you think that’s bad?’
It is in this context that Senator Pat Toomey (R-Pa.) intervened.
“Yesterday’s enforcement action is the perfect example of the SEC having a clear view on how and why certain tokens are classified as securities,” the lawmaker tweeted. “Yet the SEC did not disclose its views before initiating legal action.”
“Do you think that’s bad?” commented billionaire and Dallas Mavericks owner Mark Cuban. “Wait until you see what they come up with for token registration. This is the nightmare for the crypto industry. How else do you keep thousands of lawyers employed and create reasons to ask for more money? to taxpayers? https://youtu.be/9fDiVXpWp1U.”
The Shark Tank TV star accompanied his post with a YouTube link to a message left by the SEC after he called the agency in 2014 to try to find out if the stock purchase he wanted to make would violate insider trading laws. . He never received a straight answer. Cuban, in the video, applies the instructions of the SEC employee but in vain because he will not have an answer to his question, thus exposing himself to a possible sanction for insider trading.
The successful entrepreneur, who has invested in numerous crypto projects, wants to prove that the SEC deliberately keeps its rules vague. This is what the entire crypto industry blames the regulator for.
For the past five years, the SEC has been regulating the crypto industry through enforcement actions, targeting startups that have raised funds through initial coin offerings. The regulator is, for example, in a confrontation with Ripple, a San Francisco-based blockchain payment company. In a lawsuit, the commission considers that XRP, a token associated with Ripple, should be considered a security, which the firm rejects.
Another sign of the tensions: the SEC has said in the past that it does not consider Bitcoin and Ether, the top two cryptocurrencies by market capitalization, as securities, but current Chairman Gary Gensler still maintains the vagueness on Ether.
Gensler told lawmakers last May that Bitcoin is a “commodity token,” but avoided questions about Ether.