The Chamber of Digital Commerce, a non-profit trade association that engages government officials on the use of crypto and blockchain, has urged a federal court to dismiss a case brought by the U.S. Securities and Exchange Commission (SEC) against former Coinbase employees accused of insider trading.
In an amicus brief filed Wednesday, the Chamber of Digital Commerce argued that “the SEC currently lacks the authority to seek the adjudication of digital assets as securities, particularly in the context of an insider trading case like this one.”
Amicus briefs are legal documents supplied to a court of law containing advice or information relating to a case from an organization or an individual who isn't a party to a case and acts as “a friend” of the court.
“Under Supreme Court precedent, the agency’s authority to expand its regulatory writ to virtually all transactions touching upon a digital asset is a major question requiring clear Congressional authorization. But the SEC has never been granted such authority, and legislation pending before Congress makes very clear that it likely never will be,” reads the document.
Last year, prosecutors accused the former Coinbase product manager Ishan Wahi of providing information regarding upcoming token listings on the exchange to his brother Nikhil Wahi, as well as his friend, Sameer Ramani.
At least nine cryptocurrencies involved in the scheme were unregistered securities, alleged the SEC at the time.
Despite Ishan Wahi pleading guilty to charges and Nikhil Wahi sentenced to 10 months in prison for his role in a crypto insider trading scheme that generated an alleged $1.1 million in profits, the Chamber is now seeking to dismiss the case and put an end to the SEC’s attempt at what it calls “back door” rulemaking.
“The litigation… is an unprecedented, stealth attempt to expand the agency’s jurisdictional reach, and threatens the health and viability of the U.S. marketplace for digital assets,” the Chamber said in a blog post.
Today @DigitalChamber, with help from @WinstonLaw, filed an amicus brief in @SECGov v Wahi. This case should be dismissed as it represents an unprecedented expansion of the SEC’s campaign of “regulation through enforcement.”
Read our brief👇https://t.co/JfPAYLdva2
— Chamber of Digital Commerce (@DigitalChamber) February 22, 2023
Chamber objects to unregistered securities trades
According to the Chamber, though the SEC has failed to clearly define which transactions it considers to be securities, issuers and allocators of those assets still face monetary damages and the threat of enforcement action for having potentially transacted in unregistered securities.
While stressing that it takes no sides on insider trading accusations, the Chamber said it disagrees that secondary market trades of digital assets are securities transactions. The trade group also has “serious concerns about the SEC’s attempt to label them as such in the context of an enforcement action against third parties who had nothing to do with creating or allocating those assets.”
“This novel variation on the SEC’s 'regulation by enforcement' theme not only poses significant notice and due process concerns, but will inevitably engender a host of negative collateral consequences for other market participants, including the very 'investors' the SEC is charged to protect,” said the Chamber.
The Chamber of Digital Commerce is not the only organization to oppose the SEC in the Coinbase insider trading case.
Earlier this month, the Blockchain Association filed a similar amicus saying that “the SEC has done more to confuse rather than clarify the application of U.S. securities laws, spreading fear and cultivating distrust among the very market participants the agency is tasked to protect.”