Crypto trade association Chamber of Digital Commerce has filed an amicus brief with a US district court in Washington, urging the dismissal of a case brought by the SEC against ex-Coinbase employees accused of insider trading.
The group argued that the case unfairly labeled several crypto assets as securities and that if the court proceeded with the case from the SEC, it could have wide-ranging ramifications for the cryptocurrency industry and hurt crypto investors.
Ishan Wahi, a one-time product manager at Coinbase, his brother Nikhil Wahi, and their acquaintance Sameer Ramani were charged by the SEC with securities fraud for allegedly using insider information to buy and sell at least 25 cryptocurrencies for a financial gain, nine of which were allegedly securities, according to the agency.
The Wahi brothers and Ramani with wire fraud connected to the first-ever insider trading case employing cryptocurrencies. Ishan Wahi entered a plea deal for two conspiracy charges to commit wire fraud.
The Chamber of Digital Commerce argues that the SEC’s action is a backdoor attempt to classify cryptocurrency tokens as securities. The commission should have instead issued a rule outlining its expectations or waited for Legislation to provide clarity.
The company expressed worry over the SEC’s attempt to classify these assets as securities in the context of an enforcement action against third parties who had no part in developing, distributing, or marketing such assets.
The trade association has previously critiqued the SEC for launching enforcement cases against companies that deal in digital assets and pushed for official rulemaking that targets cryptocurrencies specifically.
The SEC has claimed that since many cryptocurrencies fit the definition of security, current securities regulations should be applied to digital assets.
What happens if SEC wins?
According to the Chamber of Digital Commerce, if the court rules in the SEC’s favor, crypto exchanges that provide the nine tokens classified as securities may be subject to private lawsuits and government and state regulatory measures.
The group cautioned that the move might also lower the value of those tokens, which would hurt regular investors.
The Chamber of Digital Commerce believes that the SEC’s lawsuit is an effort to broaden its legal authority in a covert and unprecedented way, endangering the stability of the US market for digital assets.
According to the trade association, the SEC’s intrusion into the market for digital assets was never approved by Congress, and the regulator’s activities are causing a disruptive regulatory environment that is harmful to the investors it is tasked with protecting.