SEC leverages insider trading ruling to strengthen lawsuit against Coinbase

The Securities and Exchange Commission is looking to take advantage of a recent court ruling on insider trading to bolster its lawsuit against Coinbase.

In a notice filed on Monday to New York District Judge Katherine Polk Failla, the SEC said it wanted to inform the court of a default judgment made on March 1 where a court ruled that the trading of certain crypto assets on secondary markets, including crypto exchanges, are securities. 

The case involved Sameer Ramani, who was friends with former Coinbase product manager Ishan Wahi and his brother, Nikhil Wahi. Ishan and Nikhil Wahi reached a settlement with the SEC last May over charges that they engaged in insider trading. The SEC's court filing last week noted that “Ramani appears to have fled the country to avoid criminal prosecution for the actions alleged in this case," in part justifying the default judgment.  

"Plaintiff Securities and Exchange Commission ('SEC') respectfully informs the Court of a recent ruling on a motion for default judgment in SEC v. Wahi … that is relevant to the Court’s consideration of Defendants’ Motion for Judgment on the Pleadings and the SEC’s Opposition…" the SEC said in its notice on Monday. 

The SEC had accused Ishan Wahi of helping to coordinate the exchange's public listing announcements, which included what cryptocurrencies would be made available to trade, and tipped the timing of those announcements to both his brother and Ramani.

On March 1, U.S. District Judge Tana Lin, ruled that Ramani traded on material nonpublic information that he knew was a violation of Ishan Wahi's job as a Coinbase manager, and notably said that the move was done "in connection with the purchase and sale of securities."

The cryptocurrencies involved in the alleged insider trading were securities, Lin said, because they met the prongs of the Howey Test — referring to a test that's based on a 1946 U.S. Supreme Court case the SEC often cites in determining whether an asset is a security. 

The SEC's case against Coinbase

The SEC could be looking to leverage Judge Lin's ruling in its ongoing case against Coinbase, which it brought in June, for allegedly operating as an unregistered exchange, broker and clearing agency.

The two parties — Coinbase and the SEC — faced off in January during oral arguments, where Judge Failla asked direct questions to the SEC about what constitutes a security, staking and collectibles. 

Coinbase has argued for the case to be dismissed and experts have mixed opinions on whether or not that could happen.