Cryptocurrency exchange platform Coinbase denied the Securities and Exchange Commission (SEC) claims that it offers unregistered securities to its customers.

This is after fraud charges were filed against a former employee at the company. 

Coinbase Pushes Back on SEC Claims

According to The Wall Street Journal, a former product manager at Coinbase was charged on July 21, together with two other people, with wire fraud in connection with an insider trading scheme involving cryptocurrencies.

This case is the first of its kind in the crypto market, according to TechCrunch. 

The US prosecutors accused the individuals of plotting to profit from listing new tokens on the company's platform before they were announced. 

In a separate complaint, the SEC said that nine of the 25 tokens traded in the scheme by the three charged individuals were securities. 

Also Read: Fake Crypto Wallet Apps Target iOS, Android Users-Mimicking Coinbase, Metamask, and More! 

Paul Grewal, Coinbase's chief legal officer, denied the claims by the SEC and said that seven of the nine entities included in the agency's charges are listed on the company's platform and that none of the assets are securities. 

Grewal added that Coinbase has a rigorous process to analyze and review the digital assets before making them available on the platform's exchange, and the said process was reviewed by the SEC. 

Crypto as Securities

Crypto regulators and crypto firms are considering turning some cryptocurrencies into securities. 

A San Francisco-based blockchain firm called Ripple is now fighting a lawsuit from the SEC claiming that XRP, a cryptocurrency associated with it, should be treated as a security. 

This lawsuit goes back to a case called the Howey Test, which deems an asset as a security if it meets certain criteria.

The SEC said that security is defined as an "investment of money with a reasonable expectation of profit from the efforts of others."

The SEC's position is important because it means that Coinbase may be forced to label some of the cryptocurrencies it offers as regulated financial instruments. 

According to CNBC, the process of listing securities, like shares in a company, involves disclosure and several registration requirements. Cryptocurrencies are unregulated, which means they do not have the same level of scrutiny. 

Coinbase has been known to be more conservative with its token listing framework than other exchange platforms. Both FTX and Binance offer more than 300 coins, while Coinbase lists only 200. 

Nevertheless, the SEC believes that Coinbase is hosting unregulated securities on its exchange platform, a claim that the company denies. 

Caroline Pham, the Commodity Futures Trading Commission commissioner, also weighed in on the case against Coinbase.

Phalm called the SEC securities fraud charges an example of regulation by enforcement. She said in a statement that SEC's allegations could have broad implications beyond the case, underscoring how important and urgent it is that regulators work together. 

Meanwhile, Grewal concurred with Pham's assessment of the situation and said that the SEC relies on one-off enforcement actions instead of inclusively tailored rules.

Grewal said it is an attempt to bring all digital assets into its jurisdiction, even if they are not securities.

Related Article: A Coinbase Bug Made Some People Think They're Billionaires Recently 

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Written by Sophie Webster