Paul Grewal, chief legal officer of Coinbase, said the firm does not list securities after the Securities and Exchange Commission asserted that at least nine crypto assets on its exchange were securities in an insider trading case brought by the regulator.

On 21 July the SEC announced insider trading charges against a former Coinbase product manager, his brother, and his friend for perpetrating a scheme to trade ahead of multiple announcements regarding certain crypto assets that would be made available for trading on the Coinbase platform.

Today we announced insider trading charges against a former Coinbase product manager, his brother, and his friend for perpetrating a scheme to trade ahead of multiple announcements regarding certain crypto assets that would be made available for trading on the Coinbase platform.

— U.S. Securities and Exchange Commission (@SECGov) July 21, 2022

Gurbir S. Grewal, Director of the SEC’s division of enforcement, said in a statement: “We are not concerned with labels, but rather the economic realities of an offering. In this case, those realities affirm that a number of the crypto assets at issue were securities, and, as alleged, the defendants engaged in typical insider trading ahead of their listing on Coinbase.”

The Department of Justice also said in a statement that it had charged three people in the first ever cryptocurrency insider trading tipping scheme.

Grewal wrote in a blog: “Coinbase does not list securities on its platform. Period. We have said it before, but given today’s events, it bears repeating.”

He wrote that the Department of Justice reviewed the same facts as the SEC but chose not to file securities fraud charges against those involved. Grewal said: “We, respectfully, 100% disagree with the SEC’s decision to file these securities fraud charges and the substance of the charges themselves.”

Coinbase has a rigorous process to analyze and review each digital asset before making it available on its exchange according to Grewal.

“We cooperated with the SEC’s investigation into the wrongdoing charged by the DOJ,” added Grewal. “But instead of having a dialogue with us about the seven assets on our platform, the SEC jumped directly to litigation.”

1/ Coinbase doesn’t list securities. Period. ⬇️

— paulgrewal.eth (@iampaulgrewal) July 21, 2022

3/ 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.

— paulgrewal.eth (@iampaulgrewal) July 21, 2022

5/ This is another example of regulation by enforcement on behalf of the SEC, which is not an effective or transparent approach to regulation. More in our blog -> https://t.co/SaacvrZEiU

— paulgrewal.eth (@iampaulgrewal) July 21, 2022

Grewal said this highlights that the US doesn’t have a clear or workable regulatory framework for digital asset securities.

“Instead of crafting tailored rules in an inclusive and transparent way, the SEC is relying on these types of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those assets that are not securities,” he said. “With no prior knowledge of the timing of the charges discussed), Coinbase filed a petition for rule making with the SEC calling for actual rule making so the crypto securities market has a chance to develop.”

Faryar Shirzad, chief policy officer of Coinbase ,said in a blog that the SEC has been unwilling to write new rules for crypto securities, but instead relied on an enforcement-first approach which stifles development and has created enormous risk for investors. He continued that if the SEC permitted the tokenization of securities, the opportunities for innovation would be significant.

“The crypto markets could be expanded to offer crypto securities, subject to SEC regulation and governance, thereby giving investors new ways to invest in crypto,” added Shirzad. “And opening debt and equity securities to tokenization would promote efficiency and resiliency in traditional markets.”

2/ The U.S. crypto market, which is overwhelmingly made up of commodities, is robust. Yet despite billions of dollars invested in crypto innovation, and 13+ years since the invention of Bitcoin, there is still no meaningful crypto securities market in the U.S.

— Faryar Shirzad (@faryarshirzad) July 21, 2022

4/ As a result, the U.S. is falling behind in digital asset innovation. Other regulators around the world, including in the EU, UK, Singapore, Japan, Hong Kong, and Australia, are well on their way to cohesive workable crypto rules.

— Faryar Shirzad (@faryarshirzad) July 21, 2022

6/ Unfortunately, @SECGov has been unwilling to write new rules for crypto securities. Instead, it has relied on one-off enforcement actions. This approach has stifled the crypto securities market and created enormous risk for investors.

— Faryar Shirzad (@faryarshirzad) July 21, 2022

8/ We invite others to join us in finding a workable solution. We may not agree every step of the way, but it’s critical that this is an open and transparent process where the public can weigh in. Policymaking at this level is far too important to be made in a black box.

— Faryar Shirzad (@faryarshirzad) July 21, 2022

Caroline Pham, CFTC Commissioner, also believes that the case of SEC v. Wahi is a “striking example” of regulation by enforcement.

“The SEC complaint alleges that dozens of digital assets, including those that could be described as utility tokens and/or certain tokens relating to decentralized autonomous organizations (DAOs), are securities,” she said. “The SEC’s allegations could have broad implications beyond this single case, underscoring how critical and urgent it is that regulators work together. ”

The CFTC should vigorously enforce the law and uphold the Commodity Exchange Act. This responsibility over our jurisdiction has been entrusted to us by the Congress and the American people. The CFTC must not break that trust, and we must remember whom we serve. https://t.co/F3eOOarxqF

— Commissioner Pham (@CFTCpham) July 21, 2022

“Major questions are best addressed through a transparent process that engages the public to develop appropriate policy with expert input—through notice-and-comment rulemaking pursuant to the Administrative Procedure Act,” added Pham. “Regulatory clarity comes from being out in the open, not in the dark.”

Kristin Johnson, CFTC Commissioner, said in a statement: “We must continue to work collaboratively to adopt a whole-of-government approach to prevent bad actors from taking advantage of important policy and regulatory debates and to ensure the protection of retail investors and preservation of the safety and soundness of our financial system.”

We have to work together to take a stand against fraudsters in all markets, especially those targeting vulnerable communities. While in favor of responsible innovation, we must take a stand against insider trading in #cryptomarkets pic.twitter.com/2PNg46R8ub

— The Honorable Kristin N. Johnson (@ProfKNJohnson) July 21, 2022

Marisa Tashman, policy counsel at the Blockchain Association, said:

Get ready for nine mini-trials.

But regardless, this is another example of the SEC using enforcement as a means to "guide" the industry. https://t.co/17PcOT0ctd

— Marisa Tashman (@mtash) July 21, 2022