US Crypto & Policy Watch: SEC Labels Several Crypto Currencies as Securities in Insider Trading Charges

The U.S. Securities and Exchange Commission this week charged three individuals, including a former Coinbase product manager, with an insider trading scheme that sought to capitalize on not-yet public announcements regarding certain crypto assets that would be available on Coinbase’s platform.

As part of the SEC’s complaint, the agency described nine of the 25 digital currencies in question as “a crypto asset security,” meaning they fall under the agency’s jurisdiction and should have been registered before being sold to investors.

“We are not concerned with labels, but rather the economic realities of an offering,” the SEC’s director of enforcement said in the statement. “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. Rest assured, we’ll continue to ensure a level playing field for investors, regardless of the label placed on the securities involved.”

The crypto currencies in question are AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX and KROM.

The SEC highlighted the characteristics that means this meet the definition of a security, arguing that the accused “traded in securities subject to the federal securities laws because these crypto assets were investment contracts; they were offered and sold to investors who made an investment of money in a common enterprise, with a reasonable expectation of profits to be derived from the efforts of others.”

The examples of activities that met the SEC’s threshold for being classified as a security include:

• Each of the nine crypto asset securities were offered and sold by an issuer to raise money that would be used for the issuer’s business.
• Investors were solicited by touting the potential for profits to be earned from investing in these securities based on the efforts of others.
• The issuers emphasized the ability for investors to resell these tokens in the secondary markets, on platforms such as Coinbase.
• Each of the nine companies promised potential investors…