A Coinbase investigation by the US Securities and Exchange Commission (SEC) is underway over reports of improper trading, reported Bloomberg News on July 25. The probe will look into Coinbase crypto listings to see if the crypto exchange let Americans trade digital assets that should have been listed as securities.
Coinbase and SEC found themselves in the midst of another last week, when a former Coinbase product manager was charged with insider trading.
Can You Buy Securities on Coinbase?
Coinbase is not allowed to trade securities. The firm has vehemently denied allegations that nine of the crypto assets traded on its platform are securities. But Coinbase and SEC have often struggled to see eye to eye. The crypto exchange has come under increased scrutiny after a former product manager was found to have shared confidential information about tokens listed on its website with two of his associates. Together, they appear to have made illicit gains of nearly $1.5 million.
As Coinbase faces a SEC probe for allegedly listing securities, Paul Grewal, Chief Legal Officer of Coinbase, posted a statement on the company blog titled “Coinbase does not list securities. End of story.” He firmly declared that Coinbase securities are not a thing.
The SEC insisted that nine digital assets involved are securities. Meanwhile, the Department of Justice (DOJ), which is investigating the insider trading case, chose not to file securities fraud charges against the firm.
Grewal wrote that the exchange respectfully disagrees with the SEC’s point of view on the Coinbase investigation. He clarified that seven of the nine assets under purview are listed on Coinbase’s platform. He added, “None of these assets 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.”
Regulatory Reforms and Securities
The financial officer also expressed his displeasure at the SEC’s high-handedness. He stated that instead of engaging in a fruitful dialog over the seven assets on their platform, the SEC directly jumped into litigation. According to the written statement, the Coinbase and SEC tussle reflects a major problem in the US – the lack of clear and workable regulations with regard to digital asset securities.
Meanwhile, before the SEC revealed the charges, Coinbase had filed a petition with the agency to begin rulemaking on digital asset securities. It assured stakeholders that it follows a rigorous review process to keep securities off its platform, but in light of recent events it does not seem sufficient. In a blog post on July 21, Coinbase called on the agency to develop a workable regulatory framework in order develop the “robust crypto market in the US.” The company stated that the current securities rules do not work for digitally native instruments, tokenized debt, tokenized equity, or crypto. This has caused the United States to fall behind its peers in digital asset innovation.
With regard to the Coinbase investigation, a company spokesperson told Reuters that the crypto firm believes “there’s a huge untapped market and the US risks falling behind if the SEC doesn’t engage in a transparent and public rulemaking process for digital asset securities.”
The federal agency, on the other hand, has not made any official comments and the Coinbase and SEC stalemate will likely bring attention to the often-ignored crypto securities market. The SEC’s probe predates the investigation into the insider trading case involving Coinbase crypto listings.
