Coinbase Global (NASDAQ: COIN) is facing a US Securities and Exchanges Commission probe into whether it improperly let Americans trade digital assets that should have been registered as securities, reported Bloomberg.
Coinbase's troubles escalated last week when Ishan Wahi, a former employee, was arrested on orders from New York Southern District Attorney's Office when he was about to board a plane to New Delhi.
Wahi knew in advance about the list of particular crypto assets and the timing of Coinbase’s public announcement of the crypto listings and he illegally disclosed the confidential information to his brother Nikhil Wahi and his friend Sameer Ramani.
SEC is treating the case as the first crypto insider trading case. FBI Assistant Director Michael J. Driscoll said: “Although the allegations in this case relate to transactions made in a crypto exchange - rather than a more traditional financial market – they still constitute insider trading. As alleged, the defendants made illegal trades in at least 25 different crypto assets and realized ill-gotten gains totalling approximately $1.5 million. Today’s action should demonstrate the FBI’s commitment to protecting the integrity of all financial markets – both ‘old’ and ‘new.’”
Coinbase is a crypto exchange founded by former Airbnb employee Brian Armstrong in 2012. It also offers a blockchain crypto wallet where one can store bitcoins and access them with a private key and can make P2P transactions. For trading Bitcoin for Ethereum on the platform, Coinbase may charge up to 2.00% of the total transacted value. Coinbase has more than 98 million verified users and trades around $309 billion worth of fiat and cryptocurrency. It offers more than 200 cryptocurrencies to trade from, as of Tuesday morning.
In a tweet, Caroline Pham, the Commissioner of Commodities Futures Trading Commission (CFTC), said that this is “a striking example of ‘regulation by enforcement'" by the SEC.
However, Paul Grewal, Chief Legal Officer at Coinbase, said that only seven of the nine assets included in the SEC’s charges are listed on Coinbase’s platform, and none of them are securities.
"Coinbase has a rigorous process to analyze and review each digital asset before making it available on our exchange — a process that the SEC itself has reviewed. This process includes an analysis of whether the asset could be considered to be a security, and also considers regulatory compliance and information security aspects of the asset. To be explicit, the majority of assets that we review are not ultimately listed on Coinbase." Grewal wrote in a Coinbase blog.
"We are confident that our rigorous diligence process — a process the SEC has already reviewed — keeps securities off our platform," he added.