Reported by LEO SCHWARTZ

As the legal debate continues over whether sales of cryptocurrencies constitute securities, all eyes have been on a court case involving a Coinbase employee sharing insider information with his brother and a friend. While the main defendant, former Coinbase employee Ishan Wahi, and his brother have reached settlements with both the Department of Justice and the Securities and Exchange Commission, the friend—Sameer Ramani—remains at large.

On Friday, a federal judge in the Western District Court of Washington issued a ruling in the case against Ramani. The ruling, which agreed in part to the SEC’s request for a default judgment, could have serious implications for both Ramani and the broader crypto industry.

In the decision, Judge Tana Lin ruled that the case fell under the SEC’s jurisdiction because the crypto assets at issue were securities, even though they were traded on Coinbase, a secondary market. As courts grapple with the question of when crypto assets are securities, the decision is the strongest decision yet by a federal judge to support Chair Gary Gensler’s argument that the vast majority of the industry’s activity falls under its remit.

Insider trading

The SEC’s Coinbase insider trading lawsuit is a more complicated case because none of the defendants are crypto firms, but instead, individuals accused of using insider information for personal gain. 

In two cases brought by the SEC and Department of Justice, prosecutors argued that a Coinbase employee, Ishan Wahi, shared confidential information with his brother and friend, who were able to net more than $1.5 million in trades.

On Friday, Lin ruled in favor of the SEC, agreeing that sales of the crypto assets constituted securities, even when sold on secondary markets. In her decision, she argued that the tokens were broadly promoted by issuers, therefore creating an expectation of increased value. Furthermore, the issuers facilitated trading on secondary trading markets like Coinbase.

As a result, Lin ruled that every crypto asset that Ramani purchased and traded constituted investment contracts. Unlike Rakoff’s ruling in the Terraform case, Lin’s decision is significant because it involves secondary transactions, rather than sales directly from an issuer.

Read full report: https://fortune.com/crypto/2024/03/03/sec-coinbase-insider-trading-kraken-howey-binance-ripple-terra/amp/