What is happening with Coinbase?

The Securities and Exchange Commission on Thursday announced insider trading allegations against former Coinbase employee Ishan Wahi, as well as his brother Nikhil Wahi and friend Sameer Ramani.

Also on Thursday, the Department of Justice announced the opening of an indictment with charges of wire fraud and wire fraud conspiracy against the group. The Wahi brothers were arrested while Ramani remains at large.

All of them were accused of running an insider trading operation. Additionally, the SEC’s legal argument, which is a separate issue, has revived an ongoing controversy in the cryptocurrency world and sparked criticism from Coinbase on Friday.

Coinbase is the largest cryptocurrency exchange in the US (but has faced other financial problems lately, such as layoffs). So when it announced that it planned to add a currency to its system, “the market value of the [the] cryptographic assets have typically increased significantly,” the DOJ complaint reads, according to the press release.

The agency claims that Ishan, who has been a part of this process at least 14 times starting last June, would notify Nikhil or Ramani before Coinbase announced it was adding a coin to the exchange.

“As a result of the scheme, Nikhil Wahi and Ramani collectively generated realized and unrealized gains totaling at least approximately $1.5 million,” the DOJ said.

In April, cryptocurrency influencer Cobie detected a large trade before Ethereum was added for Coinbase, and social media posts on the matter helped spark an investigation, Bloomberg reported.

When Coinbase met with Wahi about the matter in May, he tried to flee the country, but the police stopped him, the DOJ added.

But those were not the facts that Coinbase disputed in a blog post on Friday.

“We cooperated with the SEC’s investigation into the wrongdoings alleged by the DOJ today,” Grewal said in the post.

What they’re having trouble with is that the SEC classifies many crypto assets as securities.

This is the first case of its kind, as the DOJ noted, but whether or not the SEC’s legal argument succeeds could have ramifications for the cryptocurrency world.

While the DOJ complaint didn’t take that step, the SEC designated “at least” nine crypto assets as security. In response, Coinbase published a fierce blog post in which Chief Legal Officer Paul Grewal countered the SEC argument that CNBC reported on Friday.

Securities are things that have value and that you expect to make money from, and the SEC regulates public ones.

“A digital token or crypto asset is a crypto asset if it meets the definition of a security, which the Securities Act defines to include an ‘investment contract’, i.e. if it constitutes an investment of money, in a common enterprise, with an expectation reasonable income derived from the efforts of others,” the SEC’s complaint reads.

“During the relevant period… at least nine cryptocurrency securities that meet this definition,” the complaint added.

“It has nuances,” said Jonathan G. Blanco, CEO of NiftMint, who is not involved in the case.

Blanco told Entrepreneur that there are many different ways to look at him, but depending on the specific currency, if he walks like a title and talks like a title, it probably is.

Grewal argued that cryptocurrency needs its own rules and that this amounts to a takeover by the federal agency. “The SEC is counting on these types of one-off enforcement actions to try to bring all digital assets into their jurisdiction, even those that are not securities,” he wrote.

Commodity Futures Trading Commission Commissioner Caroline Pham said the SEC’s argument is a “striking example of ‘regulation by enforcement,'” CNBC added.

“It’s a mess,” Blanco said. “I think everyone in crypto is looking forward to more guidance from the SEC or government bodies on this matter.”

The SEC and Coinbase did not immediately respond to a request for comment on the blog post.

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