A U.S. court determined on March 1 that the trading of certain cryptocurrency assets on a secondary market, like Coinbase, constitutes a securities transaction in an insider trading lawsuit involving Ishan Wahi, the former product manager of Coinbase, his brother Nikhil Wahi, and their friend Sameer Ramani.
Despite Ramani’s token trades on the secondary market, the court’s analysis remained unchanged, according to the verdict. Even after their tokens were being exchanged on secondary markets, each issuer persisted in making false claims about how profitable their tokens were. All of the cryptocurrency assets that Ramani bought and sold were therefore considered investment contracts under Howey.
This crucial stance was adopted by the court in its default ruling against Ramani. When a defendant does not show up in court or does not reply to a summons, a default judgement is rendered.
According to the petition, Ramani appears to have left the nation in order to avoid being charged with a crime for the acts claimed in this case. The SEC and Ishan and Nikhil Wahi reached a settlement in May 2023 over what it referred to as the “first-ever insider trading case involving cryptocurrency markets.”
Though this or other action against Ramani was anticipated, the ruling takes on additional importance in light of the cryptocurrency industry’s and Coinbase’s (COIN) contention that cryptocurrencies are not securities and are not therefore regulated by the SEC.
The majority of cryptocurrencies, according to SEC Chair Gary Gensler, are securities, and as such, exchanges that deal with them must register with the agency. Furthermore, this is not the first time a U.S. court has decided whether or not sales of specific cryptocurrencies on secondary venues like exchanges qualify as unregistered securities.
While Ripple broke federal securities laws when it sold XRP directly to institutional investors, Federal District Judge Analisa Torres concluded in July that the company had not broken the law when it made XRP available to retail users through programmatic sales to exchanges.
Judge Jed Rakoff, however, disapproved of Judge Torres’ ruling in the Terraform Labs case in December 2023.
The court’s decision resulted in a ban on Ramani’s future violations, a civil penalty equal to double the entire amount of proceeds Ramani is estimated to have gained ($1,635,204), and the disgorgement of $817,602 in identified proceeds. The SEC attempted to impose prejudgment interest, but the judge rejected their request.