The crypto industry is currently in a crisis that has already crushed some big players like hedge fund Three Arrows Capital and lenders Celsius Network and Voyager Digital.
Having lost over $2 trillion in less than nine months, the crypto market has more or less stabilized over the past few days. But it was at this time that the US Securities and Exchange Commission released the bad news.
The regulator announced that nine cryptocurrencies are listed on Coinbase. (COIN) – Get the Coinbase Global Inc. report. exchange, the most popular platform in the US, are unregistered securities.
This decision, which took the industry by surprise, has important implications as tokens or coins have not been considered securities until now. This means that they avoid strict regulatory oversight and are not subject to the same financial transparency and disclosure rules as, for example, company shares. The listing process is also less rigorous than for securities.
SEC causes outrage
A security, according to the SEC, is “the investment of money in a common enterprise with a reasonable expectation of profit derived from the efforts of others.”
The announcement comes after the SEC and the Department of Justice filed charges against former Coinbase product manager Ishan Wahi and two others, accusing them of running an insider trading scheme that netted them over $1.1 million. Wahi allegedly warned his brother Nikhil Wahi and his friend Sameer Ramani about the upcoming listing announcements for the tokens on the crypto exchange.
“In the run-up to these announcements, which usually caused asset prices to rise, Nikhil Wahi and Ramani allegedly purchased at least 25 crypto assets, at least nine of which were securities, and then typically sold them shortly after the announcement in order to obtain arrived. “, the SEC said on July 21.
We are talking about nine tokens: AMP from Flexa, RLY from Rally, DDX from DerivaDEX, XYO from XY Labs, RGT from Rari Capital, LCX from the Liechtenstein Cryptoasset Exchange, POWR from Power, DFX from DFX Finance and KROM from Kromatika Finances.
“Each of the nine companies invited people to invest, promising that in the future they will make efforts to increase the value of their investments,” the SEC said. The regulator wants to refer to the famous Supreme Court decision known as the Howey test. which considers an asset a security if it meets certain criteria.
The SEC’s decision prompted a flood of criticism from the industry, other regulators and lawmakers.
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Coinbase, which could be fined by the SEC for listing nine tokens, said in a blog post that it has filed a petition with the SEC to improve “digital asset securities rulemaking” to say how it will apply federal securities laws to cryptoassets. .
“The SEC v. Wahi case is a prime example of ‘regulation by enforcement,'” Commodity Futures Trading Commission Commissioner Caroline Pham lamented in a statement posted on Twitter.
“Do you think it’s bad?”
It was in this context that Senator Pat Toomey (R-Pennsylvania) intervened.
“Yesterday’s enforcement is a perfect example that the SEC has a clear view on how and why certain tokens are classified as securities,” the legislator tweeted. “However, the SEC did not disclose its views before taking enforcement action.”
– Do you think it’s bad? Billionaire and owner of the Dallas Mavericks, Mark Cuban, commented on the situation. “Wait until you see what they come up with to register tokens. This is the nightmare that awaits the crypto industry. How else do you keep thousands of lawyers employed and create reasons to ask for more money from taxpayers? https://youtu. be/9fDiVXpWp1U.”
The Shark Tank star accompanied his post with a YouTube link to a message left for him by the Securities and Exchange Commission after he called the agency in 2014 to try to figure out if the stock purchase he wanted to make would violate U.S. insider trading. . He never received a clear answer. Cuban in the video applies the instructions of the SEC officer, but in vain because he will not have an answer to his question, thus exposing himself to a possible punishment for insider trading.
A successful entrepreneur who has invested in many crypto projects wants to prove that the SEC is deliberately keeping its rules vague. This is what the entire crypto industry blames the regulator for.
For five years, the SEC has been regulating the crypto industry with enforcement action against startups that have raised funds through initial coin offerings. The regulator, for example, is in conflict with Ripple, a payments firm based in San Francisco. In the lawsuit, the commission believes that XRP, a token associated with Ripple, should be treated as a security, which the firm rejects.
In another sign of tension, 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 remains unclear about ether.
Gensler told lawmakers last May that bitcoin was a “commodity token,” but sidestepped questions over Ethereum.
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