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The United States Securities and Exchange Commission (SEC) has formally listed nine cryptocurrencies as securities during an insider trading case that involves an ex-employee of the crypto exchange Coinbase.

The nine projects that were categorized as such are AMP (AMP), Rally (RLY), DerivaDEX (DDX), XYO (XYO), Rari Governance Token (RGT), LCX (LCX), Powerdleger (POWR), DFX Finance (DFX), and Kromatika (KROM).

This designation indicates that the instruments will from now be regulated as if they were a stock or a bond and the same goes for their issues, who will have to comply with the country’s securities laws to be able to offer the tokens to investors within the US.

“A digital token or crypto asset is a crypto asset security if it meets the definition of a security, which the Securities Act defines to include “investment contract,” i.e., if it constitutes an investment of money, in a common enterprise, with a reasonable expectation of profit derived from the efforts of others”, the SEC argued in its complaint brought up against Ishan Wahi, Nikhil Wahi, and Sameer Ramani.

The three parties named in the proceeding allegedly conspired and user privileged information to front-run investors by buying the tokens listed above before they were listed on Coinbase (COIN) and earned at least $1.1 million as a result of their scheme.

The transactions took place between June 2021 and April 2022, a period during which Ishan Wahi was serving as a Product Manager at the crypto exchange – a position that gave him access to information about when these financial products will be listed.

“Ahead of those announcements, which usually resulted in an increase in the assets’ prices, 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 announcements for a profit”, the SEC stated.

Designating Crypto Assets as Securities Could Have “Broad Implications”

By defining these nine assets as securities, the SEC is ensuring that the parties involved in the complaint will be prosecuted under the rules and provisions of the Securities Act of 1933. However, it has been argued that cryptocurrencies should not be deemed as such as their characteristics resemble more a commodity than an investment product such as a stock.

Designating these tokens as securities could have “broad implications” that may go beyond this single case, stated the Commissioner of the Commodity Futures Trading Commission (CFTC) in a letter published on her Twitter account, as the process and considerations taken into account to reach that verdict are not considered transparent enough.

In this regard, the Commissioner further stated: “Major questions are best addressed through a transparent process that engages the public to develop appropriate policy with expert input”.

Coinbase Says Securities Laws are “Not Well-Suited” For Cryptos

In a previous statement concerning the incident with Wahi, Coinbase had stated that the case was treated by the Department of Justice as wire fraud instead of securities fraud. This allowed the exchange to maintain that the assets listed within its platform are not securities.

However, they updated this blog following the SEC’s decision to categorize these nine tokens as such and deemed the action as “an unfortunate distraction” from what they consider “appropriate law enforcement”.

Moreover, in another related blog post published yesterday, Coinbase filed a petition asking the SEC to create rules that are specific to cryptocurrencies as they believe that securities laws are “not well-suited to govern digital assets”.

The exchange alleges that the US is falling behind several other countries that are innovating in this particular field and adapting their regulations so they can foster the development of these projects.

“If the Commission starts an open process where all of us can provide input, we look forward to sharing our thoughts on how to answer the important questions our petition raises, and we would encourage others to do the same”, the company stated. Meanwhile, the SEC has not made any official comments in regards to this latest controversy.

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