A former product manager at cryptocurrency exchange Coinbase has moved to dismiss charges of alleged insider trading, with his lawyers arguing the tokens he allegedly traded were not securities.
Lawyers representing ex-Coinbase employee, Ishan Wahi, and his brother, Nikhil Wahi, filed a motion on Feb. 6 in the United States District Court for the Western District of Washington to dismiss charges laid by the Securities and Exchange Commission.
The SEC charged the brothers and their associate, Sameer Ramani, with insider trading last July, alleging the trio made $1.1 million using Ishanโs tips on the timing and names of tokens in upcoming Coinbase listings.
In an over 80 page document, the lawyers outlined how the SEC was โwrongโ in its charges.
They argued the cryptocurrencies allegedly traded by the Wahiโs did not fit the legal definition of a security, as they had no โinvestment contract […] Written or implied,โ comparing them instead to baseball trading cards and beanie babies.
They argued that token developers have โno obligations whatsoeverโ to buyers on the secondary markets, adding:
โWith zero contractual relationship, there cannot be an โinvestment contract.โ It is that simple.โ
The tokens, the lawyers argued, were also all utility tokens. They emphasized the tokensโ primary use is on a platform rather than as investment products.
โNone of the tokens were like stock […] The very object of each token was to facilitate activity on the underlying platforms and, in so doing, enable each network to develop and grow.โ
The Wahi brothers and Ramani purportedly purchased at least 25 cryptocurrencies before the Coinbase listings โ of which at least nine the SEC asserts are securities โ before selling them for a profit shortly after their listing.
Lawyers slam SEC for regulatory muscling
The Wahiโs lawyers lambasted the SEC for its apparent attempt at โtrying to seize broad regulatory jurisdiction over a massive new industry via an enforcement action.โ
They said that the regulator โlacks clear congressional authorization to deem the tokens at issue to be โsecurities,โโ adding:
โIf the SEC really believes digital assets are securities, it should engage in a rulemaking or other public proceeding explicating that view and providing guidance to regulated parties on its implications.โ
Commodity Futures Trading Commission Commissioner Caroline Pham has previously expressed concern at the possible โbroad implicationsโ of the case.
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She said the SECโs actions donโt address the question of whether some cryptocurrencies are securities through a โtransparentโ process that develops โappropriate policy with expert input.โ
The Wahi brothers and Ramani also faced charges from the U.S. Attorneyโs Office for the Southern District of New York relating to wire fraud and wire fraud conspiracy.
Ishan Wahi and his legal team at Jones Day filed a strong motion to dismiss in the SEC’s enforcement action regarding alleged insider trading of 9 tokens. https://t.co/s4WZuZThAp pic.twitter.com/kFJjYvdyJc
โ Marisa Tashman Coppel (@mtcoppel) February 7, 2023
Nikhil pleaded guilty to the charges and was sentenced to 10 months in prison for wire fraud conspiracy in January. Ishan pleaded not guilty to the charges in August. Ramani seemingly remains at large.
The motion was signed by 10 attorneys from five separate law firms.
If the motion to dismiss is denied by District Judge Tana Lin, the case will continue.
