Howey Test

Coinbase wins $470K restitution in insider trading case

The brother of a former Coinbase employee allegedly profited from an insider trading scheme and now has 20 years to repay the funds.

The brother of a former Coinbase employee has agreed to pay the cryptocurrency exchange nearly $470,000 for his role in an insider trading scheme.

According to a New York District Court filing signed on April 6 and made public on April 10, Nikhil Wahi — brother of former Coinbase product manager Ishan Wahi — will be required to begin making restitution payments while serving time in prison in what is believed to be the first insider trading case involving crypto.

The amount must be paid in full within 20 years of Nikhil’s release from prison and represents the amount Coinbase spent on legal services relating to the Department of Justice’s investigation.

In September 2022 Nikhil pleaded guilty to initiating trades based on confidential information obtained from his brother and is currently serving 10 months in prison for wire fraud conspiracy charges after being sentenced on Jan. 10.

Because of his position at Coinbase, prosecutors alleged Ishan knew when the exchange would be listing new cryptocurrencies and informed his brother Nikhil and an associate of theirs, Sameer Ramani, prior to the asset listings being publicly announced.

The prices of the listed cryptocurrencies generally rose after their listing, netting Nikhil $892,500 in profit, according to prosecutors. As part of his sentencing, Nikhil was required to forfeit these funds to the United States government.

Related: Coinbase head of exchange departs and plans to start new crypto project: Report

In a separate civil case, Coinbase defended the brothers and Ramani after the trio was sued by the Securities and Exchange Commission for violating antifraud provisions of U.S. securities laws.

In a March 13 amicus brief, Coinbase said that it condemns the defendants’ conduct but was supportive of a motion to dismiss the case as it argued the SEC had no jurisdiction to file a lawsuit given the tokens in question do not pass the Howey test — a U.S. legal doctrine that evaluates whether an asset is a security.

The SEC noted in an April 3 filing that it had reached an “agreement in principle” with Ishan to resolve the SEC’s claims and was also in “good faith discussions” with Nikhil.

Hodler’s Digest, April 2-8: BTC white paper hidden on macOS, Binance loses AUS license and DOGE news

Lawyer lays out his reasoning on why XRP is not a security

Lawyer Jeremy Hogan believes the United States Securites and Exchange Commission has failed to legally demonstrate that XRP is a security.

Ripple’s XRP (XRP) is not a security because it does not fit the definition of an “investment contract,” the “only” legislative definition that it could “possibly” fit, according to Jeremy Hogan, a partner at the law firm of Hogan & Hogan.

In a series of tweets on April 9, Hogan explained that, in his opinion, XRP could only be considered a security under the definition of an “investment contract,” as it doesn’t fit the other definitions of a security such as stocks or bonds.

Hogan argues, however, that the United States Securities and Exchange Commission has not demonstrated an implied or explicit investment contract in its suit against Ripple.

“Instead it argues that the purchase agreement is all that is required — and that is all it proves,” Hogan stated.

“But that argument tears the ‘investment’ from the ‘contract’ as a simple purchase, without more, [there] cannot be an ‘investment contract,’ it is just an investment (like buying an ounce of gold) as there is no obligation for Ripple to do anything except transfer the asset,” he added.

The SEC initiated a lawsuit in December 2020, claiming that Ripple illegally sold its XRP token as an unregistered security.

Ripple has long disputed the claim, arguing that XRP doesn’t constitute an investment contract under the Howey test — a legal test used to determine if a transaction qualifies as an investment contract. The test was established in 1946 by the U.S. Supreme Court in the SEC v. W.J. case.

Hogan further argues that all of the “blue sky” cases, which the Howey case relies on for defining an “investment contract,” involved some form of a contract regarding the investment.

Related: Ripple CEO: XRP lawsuit resolved by June, SEC conduct ‘embarrassing’

“Indeed, how can a person ‘reasonably rely’ on an offeror to make them a profit when they have zero legal recourse when that offeror fails to come through?” he said.

“They cannot. Even the oft-quoted four-part test implies that a ‘contract’ of some sort is required.”

Hogan says the crux of the issue is not whether Ripple used money from the sale of XRP to fund its business, but if the SEC has proven that there was either an implied or explicit “contract” between Ripple and XRP purchasers relating to their “investment.”

“There was no such contract,” Hogan claimed.

Magazine: Bitcoin in Senegal: Why is this African country using BTC?

What are the Howey test and its implications for cryptocurrency?

The Howey test’s impact on cryptocurrency, explained — legal implications, compliance requirements and more.

What is the Howey test?

The Howey test is a legal test used in the United States to determine whether a transaction qualifies as an investment contract and, thus, is considered a security under federal law. The test was established by the U.S. Supreme Court in SEC v. W.J. Howey Co. (1946), and it has since been applied in numerous cases to determine whether various financial arrangements and offerings constitute securities. 

According to the Howey test, a transaction must contain an investment of funds in a group venture with the expectation that all gains will come from group efforts. A transaction is deemed a security if it satisfies these requirements, in which case it is subject to federal securities laws and regulations.

Understanding the criteria for a security

The test involves three key criteria that must be met in order for a transaction to qualify as a security, as discussed below:

The first criterion is a financial investment, which means that participants in the transaction must be risking their own money. This comprises both financial and in-kind investments.

The second requirement is a shared enterprise, which denotes that the financial success of the investors is somehow connected. This can be proven by providing evidence of the investors’ resource pooling or reliance on a third party to manage their investments.

The third criterion is an expectation of profits solely from the efforts of others, which means that the investors are relying on someone else to generate a return on their investment. This could include, for example, profits generated by a third-party manager or profits generated by the efforts of a particular group or organization.

The implications of the Howey test for cryptocurrency: Is it a security or not?

The implications of the Howey test for cryptocurrency are significant, as the test provides a framework for determining whether a particular cryptocurrency offering should be classified as a security under U.S. law. If a cryptocurrency offering meets the criteria outlined in the Howey test, it may be considered a security and subject to federal securities laws.

This has important ramifications for crypto businesses and investors since breaking federal securities laws can result in penalties, legal action and reputational harm to the business. To make sure they are in compliance with federal securities laws, cryptocurrency companies should carefully consider the Howey test before creating their offerings.

Related: Crypto and securities: New interpretation of US Howey test gaining ground

Tokens that do not pass the Howey test are considered utility tokens that provide investors with access to a future product or service or can be redeemed for discounted fees. While utility tokens are typically not considered securities, the SEC has suggested that the presence of a utility token framework does not necessarily mean that a project is exempt from being classified as a security.

Ultimately, the implications of the Howey test for cryptocurrency will depend on how regulators choose to apply the test in practice and how cryptocurrency companies choose to structure their offerings to comply with federal securities law.

Compliance with federal securities laws: What cryptocurrency companies need to know

Cryptocurrency companies need to be aware of the federal securities laws in the United States to ensure compliance with them. Here are some key things to keep in mind:

  • Securities laws apply to cryptocurrencies: Several cryptocurrencies are seen as securities by the Securities and Exchange Commission. This implies that cryptocurrency businesses must abide by federal securities laws, including the requirements for registration and disclosure.
  • Token offerings may be subject to securities laws: It can count as a securities offering if a cryptocurrency company sells tokens to the general public in return for cash or other assets. As a result, the business would have to adhere to securities rules, which would include registering the offering with the SEC.
  • The use of funds must be disclosed: A cryptocurrency company must state its financial goals when raising money through a securities offering. The business must also keep investors informed about how the money is being used.
  • Trading platforms may be subject to securities laws: Exchanges for securities may include cryptocurrency trading platforms that let users purchase and sell tokens. If so, the platform would have to file an SEC registration form and adhere to other securities regulations.
  • Penalties for non-compliance can be severe: Significant penalties may be imposed for non-compliance: A cryptocurrency corporation might incur severe consequences, such as fines and legal action if it violates federal securities regulations.

Therefore, cryptocurrency companies need to be aware of and comply with federal securities laws in the United States. This includes understanding whether their tokens are considered securities, disclosing the use of funds, and complying with registration and disclosure requirements.

‘It would be absurd’ for US court to rule private NFTs as securities: Lawyer

The comments from the hosts of lawyers come as Judge Victor Marreo said that Dapper Labs’ NBA Top Shot Moments NFT might constitute a security.

The Blockchain Association’s chief legal officer says “it would be absurd” for a United States court to rule that digital assets on private blockchains are securities, following a federal judge’s decision to allow a lawsuit against Dapper Labs’s NBA Top Shot nonfungible tokens (NFTs) to play out. 

U.S. attorney Jake Chervinsky commented after federal judge Victor Marreo denied a motion to dismiss a 2021 lawsuit accusing Dapper Labs of selling NFTs as unregistered securities.

Chervinsky was among a host of lawyers on Twitter to reiterate that the judge’s denial of the motion does not mean a ruling has been made on the lawsuit, only that it was “facially plausible.”

“The judge didn’t decide anything. He allowed the case to proceed past a motion to dismiss because the securities claims were at least ‘plausible,’ an extremely low bar and not a final ruling at all,” he explained.

“This dispute aside, it would be absurd if all valuable digital assets stored on centralized databases were securities.”

“This would turn every major video game developer, event ticketing platform, travel rewards program, etc. into a public reporting company regulated by the SEC,” he explained.

Another U.S. lawyer, Jesse Hynes, also weighed in on the motion in a Feb. 22 tweet, noting that motions to dismiss are “rarely ever successful” because the plaintiff only needs to plead enough evidence for the case to proceed.

“The judge ruled in the Dapper case that the plaintiff pled enough evidence that IF ALL THE ALLEGATIONS ARE TRUE, that there is a securities violation.”

“Now we go into discovery to learn what the real facts are. Once that is done Dapper will likely file for a motion for Summary Judgment,” the lawyer added.

Meanwhile, another U.S. lawyer, James Murphy — known as “MetaLawMan” — noted that the allegations that Dapper Labs issued the NBA Top Shot Moments NFTs on a privately-run blockchain were a “fundamental” factor behind the court’s decision to reject the motion to dismiss.

This prompted MetaLawMan to suggest that this “could be considered a net positive” for Ripple in its case against the U.S. Securities Exchange Commission (SEC), because XRP (XRP) is issued on a public blockchain.

Related: Dapper Labs suspends Russian accounts after new EU sanctions

The class-action lawsuit against Dapper Labs was filed in May 2021 by plaintiff Jeeun Friel, who claimed that Dapper Labs sold NFTs as unregistered securities.

Marreo denied the motion to dismiss the lawsuit on Feb. 22. He said the scheme by which Dapper Labs offers the NFTs potentially creates a sufficient legal relationship between investors and themselves, which satisfies the investment contract criteria under the Howey test.

However, it’s unlikely the ultimate ruling of this case would establish a precedent for NFTs, as Marreo said that not all NFTs will constitute securities and that each case will need to be assessed on a case-by-case basis.

Shortly after the dismissal, the Dapper Labs-issued Flow (FLOW) token fell 6.4% from $1.24 to $1.16 in 15 minutes. However, FLOW token has since rebounded at $1.29, according to CoinGecko.

Terra lawsuit a ‘roadmap’ to attack other stablecoins: Delphi Labs

Delphi Lab’s general counsel said the SEC was being “more thorough than usual” in its lawsuit against Terraform Labs and its co-founder Do Kwon.

The United States Securities and Exchange Commission’s (SEC’s) lawsuit against Terraform Labs and its co-founder Do Kwon could be seen as an SEC “roadmap” to taking down other stablecoins, according to a lawyer.

Gabriel Shapiro, general counsel at investment firm Delphi Labs, explained to his 33,800 Twitter followers on Feb. 16 that the SEC’s arguments in its complaint against Kwon and Terraform were “more thorough than usual.”

Shapiro’s analysis follows the SEC’s Feb. 16 lawsuit against Kwon and Terraform, alleging they “orchestrate[d] a multi-billion dollar crypto asset securities fraud involving an algorithmic stablecoin and other crypto asset securities.”

Shapiro suggested the case could serve as a “roadmap” for how the regulator may sue other stablecoin issuers in the future. He acknowledged the SEC made the case that Terra’s algorithmic stablecoin, TerraClassicUSD (USTC), formerly TerraUSD (UST), constitutes a security:

“[The SEC] will allege that integration, promotion, marketing, commercial deals etc building the stablecoin ecosystems are ‘efforts of others’ that are ‘reasonably expected’ and can lead to profits in connection with the stables.”

He pointed out the SEC applied the four prongs of the Howey test to argue that USTC, Terra Classic (LUNC) — formerly called Terra (LUNA) — and Wrapped LUNA Classic (WLUNC) all constituted securities under U.S. securities laws.

Delphi Labs General Counsel Gabriel Shapiro’s take on the SEC’s lawsuit against Terraform Labs and its CEO Do Kwon. Source: Twitter.

The SEC also argued that Terraform Labs breached U.S. securities laws by launching the Mirror Protocol, which allowed its users to create what Terraform called a “mAsset” — a crypto version of an asset that “mirrors” the price behavior of other assets such as stocks.

The regulator claimed Terraform Labs committed this securities-based swap through the Mirror Protocol (MIR) token — which Shapiro believes to be a “first” in cryptocurrency-related lawsuits filed by the SEC.

Shapiro noted the SEC’s claim that wLUNA constituted a “receipt” for a security was another “first.”

Delphi Labs general counsel Gabriel Shapiro’s analysis on the SEC’s lawsuit filing against Terraform Labs and its CEO Do Kwon. Source: Twitter.

Ryan Sean Adams, the host of the crypto-oriented podcast Bankless, made a similar argument to his 221,300 Twitter followers on Feb. 16, noting that a legal victory against Terraform Labs would make it easier to go after other stablecoin issuers.

The Terra-linked tokens infamously crashed in May 2022, which was partly triggered when USTC lost its peg to the U.S. dollar. As LUNC was closely linked to USTC, its price fell by almost 100% and triggered a wider downturn in the crypto markets, wiping out approximately $40 billion.

Related: Why the SEC wants to ban crypto staking and stablecoins under scrutiny — watch the Market Report live

Kwon maintains that he is not “on the run” and is believed to reside in Serbia, according to South Korean officials who issued a warrant for his arrest.

Earlier in February, two South Korean prosecutors flew to the Balkan state to find Kwon; however, the search attempt was unsuccessful.

Cointelegraph contacted Terraform Labs for comment on the lawsuit but received no response by publication time.

Are stablecoins securities? Well, it’s not so simple, say lawyers

One lawyer said that while stablecoins are meant to be stable, buyers may possibly profit from a range of arbitrage, hedging and staking opportunities.

Recently reported planned enforcement action against the Paxos Trust Company by the United States Securities and Exchange Commission (SEC) over Binance USD (BUSD) has many in the community questioning how the regulator could see a stablecoin as a security.

Blockchain lawyers told Cointelegraph that while the answer isn’t black and white, there exists an argument for it if the stablecoin was issued in the expectation of profits or are derivatives of securities.

A report from The Wall Street Journal on Feb. 12 revealed that the SEC is planning to sue Paxos Trust Company in relation to its issuance of Binance USD, a stablecoin it created in partnership with Binance in 2019. Within the notice, the SEC reportedly alleges that BUSD is an unregistered security.

Aaron Lane, a senior lecturer at RMIT’s Blockchain Innovation Hub, told Cointelegraph that while the SEC may claim these stablecoins to be securities, that proposition hasn’t been conclusively tested by the U.S. Courts:

“With stablecoins, a particularly contentious issue will be whether the investment in the stablecoin led a person to an expectation of profit (the ‘third arm’ of the Howey test).”

“On a narrow view, the whole idea of the stablecoin is that it is stable. On a broader view, it could be argued that arbitrage, hedging and staking opportunities provide an expectation of profit,” he said.

Lane also explained that a stablecoin might fall under U.S. securities laws in the event that it is found to be a derivative of a security.

This is something that SEC Chair Gary Gensler emphasized strongly in a July 2021 speech to the American Bar Association Derivative and Futures Law Committee:

“Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities.”

“These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime,” he said at the time.

However, Lane stressed that ultimately each case “will turn on its own facts,” particularly when adjudicating on an algorithmic stablecoin rather tha a crypto or fiat-collateralized one.

A recent post by Quinn Emanuel Trial Lawyers has also approached the subject, explaining that to “ramp up” stablecoins to a “stable value,” they may sometimes be offered on discounted prior to sufficiently stabilizing.

“These sales may support an argument that initial purchasers, despite formal disclaimers by issuers and purchasers alike, buy with the intent for resale following stabilization at the higher price,” it wrote.

Are Stablecoins Securities? A legal analysis from Quinn Emanuel Trial Lawyers. Source. Quinn Emanuel.

But while stablecoin issuers may resort to the courts to decide the dispute, many believe the SEC’s “regulation by enforcement” approach is uncalled for.

Digital assets lawyer and partner Michael Bacina of Piper Alderman, told Cointelegraph that the SEC should instead provide “sensible guidance” to help the industry players who are seeking to be legally compliant:

“Regulation by enforcement is an inefficient way of meeting policy outcomes, as SEC Commissioner Peirce has recently observed in her blistering dissent in relation to the Kraken prosecution. When a rapidly growing industry doesn’t fit the existing regulatory framework and has been seeking clear pathways to compliance, then engagement and sensible guidance is a far superior approach than resorting to lawsuits.”

Cinneamhain Ventures partner Adam Cochran gave another view to his 181,000 Twitter followers on Feb. 13, noting that the SEC can sue any company that issues financial assets under the much broader Securities Act of 1933:

The digital asset investor then explained that the SEC isn’t restricted to the Howey Test:

“The fact that these assets hold underlying treasuries, makes them a lot like a money market fund, exposing holders to a security, even if they don’t earn from it. Making an argument (not one I agree with, but a reasonable enough one) that they can be a security.”

“Worth fighting tooth and nail, but everyone who is shrugging this off as “lol the SEC got it wrong, this doesn’t pass the Howey test” needs to re-eval. The SEC, believe it or not, has knowledgeable securities counsel,” he added.

Related: SEC chair compares stablecoins to casino poker chips

The latest reported planned action from the SEC comes after reports emerged on Feb. 10 that Paxos Trust was being investigated by the New York Department of Financial Services for an unconfirmed reason.

Commenting on the initial reports, a spokesperson for Binance said BUSD is a “Paxos issued and owned product,” with Binance licensing its brand to the firm for use with BUSD. It added Paxos is regulated by the New York Department of Financial Services (NYDFS) and that BUSD is a “1 to 1 backed stablecoin.“

“Stablecoins are a critical safety net for investors seeking refuge from volatile markets, and limiting their access would directly harm millions of people across the globe,” the spokesperson added. “We will continue to monitor the situation. Our global users have a wide array of stablecoins available to them.”

Crypto exchange Kraken faces probe over possible securities violations: Report

The probe is reportedly looking at certain offerings that Kraken has made to its United States customers that could be in breach of securities laws.

Cryptocurrency exchange Kraken is reportedly being probed by the United States Securities and Exchange Commission over whether it breached rules around the offering of securities. 

According to a Feb. 8 Bloomberg report, the probe relates to certain offerings that Kraken has made to U.S. clients. A person with knowledge of the matter said the probe is at an advanced stage and could reach a settlement in the coming days.

However, at this stage, it is not clear which offerings are being scrutinized by the securities regulator.

When asked about the alleged probe, an SEC spokesperson told Cointelegraph, “The SEC does not comment on the existence or nonexistence of a possible investigation.”

Kraken did not immediately respond to a request for comment.

The SEC’s Washington headquarters. Source: Wikipedia

Gensler said in December that his main goal for regulating crypto throughout 2023 was to make crypto exchanges and lending platforms come into compliance, which he said could occur through firms registering with the SEC or through enforcement actions.

Related: Judge dismisses proposed class-action suit alleging Coinbase securities sales

Kraken CEO Dave Ripley argued in September that he didn’t see a need to register Kraken as an exchange with the SEC because it does not offer securities, adding “There are not any tokens out there that are securities that we’re interested in listing.”

SEC Chairman Gary Gensler has repeatedly said, however, that he considers most cryptocurrencies other than Bitcoin (BTC) to be securities.

The SEC however recently conceded during a Jan. 30 appeal hearing in the LBRY v SEC case that the sale of LBRY Credits (LBC) in the secondary market doesn’t constitute a security, after the judge was persuaded by an argument from attorney John Deaton highlighting that the courts had never deemed the underlying asset to be a security in similar cases.

The regulator often refers to the “Howey test” to determine what constitutes a security. The name comes from the SEC v Howey case from 1946, which set a precedent in the U.S. for what transactions are considered securities.

It held that a transaction qualifies as an investment contract — and therefore is considered a security — where there is an investment in a common enterprise with profits earned exclusively through the work of others.

Former Coinbase manager slams SEC in motion to dismiss insider trading case

The attorneys for brothers Ishan and Nikhil Wahi want the case thrown out, arguing that the Securities and Exchange Commission was wrong when it charged the pair.

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 Ishan’s 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 “wrong” in its charges.

They argued the cryptocurrencies allegedly traded by the Wahi’s did not fit the legal definition of a security, as they had no “investment contract […] Written or implied,” comparing them instead to baseball trading cards and beanie babies.

Lawyers for the Wahi brothers argued the tokens allegedly purchased by the pair are akin to physical baseball cards, such as those pictured, which can sell for thousands. Source: Twitter

They argued that token developers have “no obligations whatsoever” to buyers on the secondary markets, adding:

“With zero contractual relationship, there cannot be an ‘investment contract.’ It is that simple.”

The tokens, the lawyers argued, were also all utility tokens. They emphasized the tokens’ primary use is on a platform rather than as investment products.

“None 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.”

The Wahi brothers and Ramani purportedly purchased at least 25 cryptocurrencies before the Coinbase listings — of which at least nine the SEC asserts are securities — before selling them for a profit shortly after their listing.

Lawyers slam SEC for regulatory muscling

The Wahi’s lawyers lambasted the SEC for its apparent attempt at “trying to seize broad regulatory jurisdiction over a massive new industry via an enforcement action.”

They said that the regulator “lacks clear congressional authorization to deem the tokens at issue to be ‘securities,’” adding:

“If 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.”

Commodity Futures Trading Commission Commissioner Caroline Pham has previously expressed concern at the possible “broad implications” of the case.

Related: Did dYdX violate the law by changing its tokenomics?

She said the SEC’s actions don’t address the question of whether some cryptocurrencies are securities through a “transparent” process that develops “appropriate policy with expert input.”

The Wahi brothers and Ramani also faced charges from the U.S. Attorney’s Office for the Southern District of New York relating to wire fraud and wire fraud conspiracy.

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.

Ripple counsel: SEC’s shakedowns leave consumers holding the bag

The response comes as Ripple Labs and other critics believe the SEC has overstepped its mark on the enforcement of the crypto space.

Ripple Labs General Counsel Stu Alderoty has hit back at a recent opinion piece by Security and Exchange Commission chairman Gary Gensler, arguing that the regulator’s crypto market shakedowns aren’t protecting consumers. 

In an Aug. 28 opinion piece on the Wall Street Journal (WSJ) titled “The SEC Wants to Be America’s Crypto Cop,” Alderoty claimed the SEC is “pushing aside his follow regulators” instead of concentrating on providing regulatory clarity for crypto.

He gave an example of the recent “shakedown” of BlockFi by the SEC, which led to the company ending “up on the auction block” and two other similar companies going “belly up,” arguing: 

“Consumers weren’t protected, they were left holding the bag.”

The piece came in response to Gensler’s Aug. 19 article “The SEC Treats Crypto Like the Rest of the Capital Markets” which was also published on WSJ a defended the regulator’s crackdown on the crypto industry. 

The Ripple counsel however argues that the SEC hasn’t provided sufficient clarity over crypto regulation and instead declares itself as “the cop on the beat” for crypto. 

He claims the chairman is “pushing aside his fellow regulators” and “front-running” President Biden’s executive order which asks regulators to collaborate on crypto regulation.

The executive order, Alderoty referred to is the “Ensuring Responsible Development on Digital Assets,” which was signed on Mar. 9. 2022 to ensure that both the SEC and Commodity Future Trading Commission (CFTC) coordinate and collaborate on establishing a crypto regulatory framework.

However, Aldetory claims the SEC has neither abided by the executive order nor provided any “regulatory clarity for crypto” and is instead “protecting its turf at the expense of more than 40 million Americans in the crypto economy.”

Gensler argued in his article that U.S. federal security laws were designed to protect investors and that “there’s no reason to treat the crypto market differently from the rest of the capital markets just because it uses a different technology.”

Related: SEC listing 9 tokens as securities in insider trading case ‘could have broad implications’ — CFTC

But many critics disagree, with Forbes writer Roslyn Layton suggesting in an Aug. 28 opinion piece that the SEC’s decision to double its Crypto Assets and Cyber Unit staff and the SEC’s “regulation by enforcement” approach as reasons for the contrary.

Earlier in the month, U.S. Attorney John Deaton also claimed foul play, in that Gensler and the SEC were intentionally targeting cryptocurrencies, and that it has overstepped the mark on what they can currently do to regulate crypto:

“It doesn’t take a constitutional law expert to understand that the SEC has limited jurisdiction over the crypto industry; barring congressional action, front line regulation of digital assets belongs with the Commodity Futures Trading Commission — the main regulator of investments that are not deemed traditional securities.”

Ripple counsel: SEC’s shakedowns leave consumers holding the bag

The response comes as Ripple Labs and other critics believe the SEC has overstepped its mark on the enforcement of the crypto space.

Ripple Labs general counsel Stu Alderoty has hit back at a recent opinion piece by United States Security and Exchange Commission chair Gary Gensler, arguing that the regulator’s crypto market shakedowns aren’t protecting consumers. 

In a Monday opinion piece by the Wall Street Journal (WSJ) titled “The SEC Wants to Be America’s Crypto Cop,” Alderoty claimed the SEC is “pushing aside his follow regulators” instead of concentrating on providing regulatory clarity for crypto.

He gave an example of the recent “shakedown” of BlockFi by the SEC, which led to the company ending “up on the auction block” and two other similar companies going “belly up,” arguing: 

“Consumers weren’t protected, they were left holding the bag.”

The piece came in response to Gensler’s Aug. 19 article “The SEC Treats Crypto Like the Rest of the Capital Markets,” which was also published on WSJ a defended the regulator’s crackdown on the cryptocurrency industry. 

The Ripple counsel, however, argues that the SEC hasn’t provided sufficient clarity over crypto regulation and instead declares itself as “the cop on the beat” for crypto. 

He claims the chairman is “pushing aside his fellow regulators” and “front-running” President Biden’s executive order, which asks regulators to collaborate on crypto regulation.

The executive order Alderoty referred to is the “Ensuring Responsible Development on Digital Assets,” which was signed on March 9. 2022 to ensure that both the SEC and Commodity Future Trading Commission (CFTC) coordinate and collaborate on establishing a crypto regulatory framework.

However, Aldetory claims the SEC has neither abided by the executive order nor provided any “regulatory clarity for crypto” and is instead “protecting its turf at the expense of more than 40 million Americans in the crypto economy.”

Gensler argued in his article that U.S. federal security laws were designed to protect investors and that “there’s no reason to treat the crypto market differently from the rest of the capital markets just because it uses a different technology.”

Related: SEC listing 9 tokens as securities in insider trading case ‘could have broad implications’ — CFTC

But, many critics disagree, with Forbes writer Roslyn Layton suggesting in a Monday opinion piece that the SEC’s decision to double its Crypto Assets and Cyber Unit staff and the SEC’s “regulation by enforcement” approach as reasons for the contrary.

Earlier in the month, U.S. Attorney John Deaton also claimed foul play, in that Gensler and the SEC were intentionally targeting cryptocurrencies and that it has overstepped the mark on what they can currently do to regulate crypto:

“It doesn’t take a constitutional law expert to understand that the SEC has limited jurisdiction over the crypto industry; barring congressional action, front line regulation of digital assets belongs with the Commodity Futures Trading Commission — the main regulator of investments that are not deemed traditional securities.”