US Court Rules on Coinbase Insider Trading Case: Cryptocurrency Sales in the Secondary Market Regarded as Securities Transactions
The document stated that the judgment was based on Ramani’s absence from the court due to evading criminal prosecution by leaving the United States, and took the aforementioned stance in the default judgment:
Even though Ramani conducted token transactions on the secondary market, each participant still attempted to emphasize the profitability of their tokens.
It further added, “Therefore, according to the Howey test used to determine investment contracts, all the encrypted assets purchased and traded by Ramani are investment contracts.”
In July 2022, the press release from the Southern District of New York Prosecutor’s Office claimed that the case was the first insider trading case involving the cryptocurrency market. Therefore, the case is often compared to the subsequent OpenSea NFT insider trading case.
In addition, cryptocurrency companies, including Coinbase, often argue that many cryptocurrencies are not securities. Hence, the aforementioned judgment is of significant importance to them.
However, perhaps due to the unclear regulations on cryptocurrency in the United States, there are differences in local judges’ rulings on whether the sale of cryptocurrencies constitutes unregistered securities.
In July of this year, Judge Analisa Torres ruled in the SEC v. Ripple ($XRP) case, stating that Ripple Labs’ “programmatic sales” of coins through exchanges did not meet the Howey test and therefore did not fall under the category of securities.
However, the “institutional sales” they conducted did make $XRP qualify as a security (investment contract), so some of the charges in the case are still pending a final ruling by the court. (Why did the SEC not surrender? The Ripple case is still awaiting a final judgment, and the SEC can still appeal next year.)
Furthermore, in the SEC v. Terraform Labs case, Judge Jed Rakoff determined that the sales of UST, LUNA, wLUNA, and MIR were all securities. Therefore, the SEC also hopes to cite this ruling, claiming that BUSD is no different from UST, and using it to support its allegations in the case against Coinbase involving the sale of unregistered securities:
Every cryptocurrency issuer may attract investors, including platforms like Coinbase, who expect an increase in the value of their assets, which meets the definition of securities. (SEC hopes to cite Terraform Labs ruling to win in the Binance and Coinbase cases.)
