SEC Bolsters Coinbase Lawsuit with Insider Trading Ruling

• The SEC is attempting to leverage a recent ruling in the insider trading case against a former Coinbase employee in its case against the exchange.
• The SEC’s move comes despite experts’ sentiments downplaying the ruling’s significance.
• Some speculate that the judge in the SEC case against Coinbase is close to deciding on Coinbase’s motions to dismiss.

As Coinbase awaits a ruling on motions to dismiss the SEC lawsuit against it , the regulator is sparing no weapon in its arsenal to convince the judge otherwise. In the latest instance, the agency attempts to wield a default judgment in an insider trading case involving a former Coinbase employee.

The SEC Doubles Down

On Monday, March 4, the SEC submitted a filing with Judge Katherine Polk Falia to bring to her notice a recent ruling in the SEC’s insider trading case against former Coinbase product manager Ishan Wahi, his brother Nikhil Wahi, and friend Sameer Ramani.

While the Wahis had settled with the SEC, Ramani fled prosecution. In a default ruling against Ramani, the judge concluded that certain crypto assets traded by the defendant on the exchange satisfied the Howey definition of investment contracts. The ruling seemingly crystallized the agency’s claim in its lawsuit against the crypto exchange for allegedly offering unregistered securities.

In the SEC’s recent filing, the agency asked the judge to consider the ruling as she decided on Coinbase’s motions to dismiss.

"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 thereto." Image of the SEC’s notice. Source: CourtListener

The recent SEC filing comes despite sentiment from Coinbase’s Chief Legal Officer Paul Grewal and other legal experts suggesting that the ruling in the insider trading case is of little precedential value.

No Reason for Coinbase to Panic?

In an X thread on Monday, March 4, Grewal contended that the ruling in the Wahi case was worth nothing “as precedent or persuasion.” As explained by the Coinbase lawyer, without opposition, the judge was bound by applicable law to agree with the SEC’s complaint “no matter how far fetched or plain wrong it is.”

"The judge here confirmed in her order that she only considered the SEC's filings and did not consider any amicus briefs or other papers showing the fallacy of the SEC's arguments," he added.

Grewal was one of many to express this view. As reported on Monday, March 4, by DailyCoin, former SEC Regional Director Marc Fagel also argued that the default judgment held limited value as a precedent.

The SEC’s latest attempt to bolster its case in the Coinbase lawsuit comes as there is currently speculation that Judge Falia will decide on motions to dismiss this month. She had held off on deciding in January 2024, requesting more time to weigh the arguments in the case.

On the Flipside

• Whether the Wahi case ruling will have a broader impact on the crypto industry remains to be seen.
• The SEC recently approved multiple spot Bitcoin ETFs with Coinbase as the chosen custodian.

Why This Matters

The SEC’s recent filing in the Coinbase case, capitalizing on its win in the Wahi case, albeit a limited one, highlights the agency’s strong opposition to dismissing the lawsuit against the crypto exchange.

Read this for more on the insider trading case ruling:

Coinbase Case Judge Sides With SEC, but How Big Is the Blow?

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