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The SEC decides some alt-coins are securities

Institutionalization of cryptocurrencies Continues at a pace.

Recent Development: We have learned that some of the alt currencies are securities, because you can catch SEC charges on insider trading. (Also criminal charges, though that’s another matter.)

The US Securities and Exchange Commission has Accused some guys With alt-coins trading before their listings on Coinbase Global exchanges, which quite reliably caused the currency price to rise. And the U.S. Attorney for the Southern District of New York brings Criminal indictment against the trioClaiming the charges of bank fraud are hers “The first ever“Case Tips for Internal Trading in Cryptographic Currency Markets. (In contrast With “hisThe first digital asset ever“An internal trading case, in which the guy with the inside information trades himself.)

Ishan WahiA 32-year-old Coinbase product manager until May of this year is accused of sending currency listing tips to his brother Nickil Wahi, 26, and a friend named Sameer Ramani, 33. U.S. authorities claim in their article. Complaints that the couple bought coins before listing and sold Them then, usually at a profit.

None of this activity has fallen anywhere near a gray area for Coinbase, as complaints say employees have repeatedly been informed that this type of trading and disclosure is prohibited. From the SEC complaint:

At all relevant times, Coinbase’s Employee Policy stated that “material non-public information” included information about Coinbase’s decision to register, not register, or add features to a digital asset. [separately defined to include tokens]”The policy further emphasizes that Coinbase employees should never disclose material, non-public information to anyone else, including family and friends, or give tips to others who may make a trading decision using material, non-public information.

But the SEC’s reach does not reach as much as one might think.

While the trio allegedly traded 25 tokens before their listing announcements, the SEC only claims nine of them were securities. Also from the SEC complaint, with our emphasis:

Throughout the relevant period, Nikhil and Romney traded repeatedly before the Coinbase listing announcements, trading at least 25 tokens. . . This repeating pattern of Ishan refers to Nickil and Romney inside information, followed by Nichil and Romney trading on this information, including trading in At least nine cryptocurrencies securitiesWhich were detailed in seven of these posts.

These tokens are: amplifier, unite, DerivaDAO, XYO, Rari Governance Token, LCX, Powerledger, DFX Finance and Chromatics.

It brings us back to ours A longtime friend of the Howie test. As we learned from The DAO And ours Alphachain ProjectThis test Creates several standards That a token must meet before it can be considered a security.

In other words, congratulations to the people who run AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX and KROM! The SEC says it is reasonable for investors to expect to make money based on your managerial efforts. You managed to list a security without the messy initial IPO process!

Does this mean that these transactions will be allowed in tokens gone Securities?

Well, there’s one big reason it’s a bad idea: the Department of Justice filing does not involve any arguments about the regulatory status of the tokens, because As we all know, Transfer charges for fraud Cover a wide range of financial crimes.

So if you are going to try to eliminate this type of program *, you will need to avoid electronic communication with anyone in international or foreign trading, using the online trading platform in Coinbase digital assets, which has offices in Chicago, New York, Portland, London, Dublin and Tokyo.

You probably also would not want to use a Foreign phone As an alleged way to escape the attention of the US authorities. Or to try to flee the country when you suspect you are about to get into trouble. From the submission, in our emphasis:

Ishan repeatedly provided his brother, Nichil, and his close friend, Romney, with material, non-public information, on the timing and content of these records. Ishan will communicate by phone and text with Nickil and Romney during 2021 and 2022, inclusive Exchanging phone calls and messages with both of them, which will not be recorded in the records of the American telephone company, because among other things, Ishan used the phone with a non-American phone number (“The Foreign Phone”). For example, on October 20, 2021, the same day that a Coinbase registration message, Nickil sent Ishan’s foreign phone a dollar sign and an emoji of his eyes: “$ 👀👀”. . . .

The suspicious trade of Nichil and Romney attracted attention. On May 11, 2022, Coinbase’s Chief Operating Officer emailed Ishan to schedule an interview with Coinbase’s Legal Department regarding the Company’s ongoing investigation into Coinbase’s asset registration process. Ishan – via the foreign phone – then sent a screenshot of the interview request to both Nickel and Romney, stating that he needed to speak to them urgently. On Monday, May 16 – the day of his scheduled interview – Ishan emailed co-workers that he would “be absent indefinitely” because he “had to fly back to India overnight”. To leave the country. Using the foreign phone, Ishan tried to call both Nickil and Romney several times on May 16th.

* Please do not do this.

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