Cryptocurrency exchange Coinbase is reportedly under investigation into SEC securities

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According to a Bloomberg report, cryptocurrency exchange Coinbase is being investigated by the United States Securities and Exchange Commission to find out if it allows users to trade unregistered securities. The SEC investigation has yet to be released.

Sources familiar with the situation told Bloomberg that the SEC began investigating Coinbase’s practices after the exchange added more than 100 additional tokens to its platform, including Dogecoin, the cryptocurrency joke featured in the meme based. about Shiba Inu. These types of coins generally do well after their first listing, but they are highly volatile and their value usually evaporates over time.

This investigation is separate from the SEC case against former Coinbase chief product officer Ishan Wahi, his brother Nikhil Wahi and his friend Sameer Ramani. The agency accused the three men of insider trading earlier this month, claiming Ishan repeatedly told his brother and friend the timing and content of upcoming listing announcements, generating over $ 1.1 million in profits. . Nikhil Wahi and Ramani are also alleged to have bought at least 25 cryptocurrencies, of which at least nine were stocks.

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I like to repeat that, we believe our rigorous due diligence process, a practice the SEC has already reviewed, keeps the securities off our platform, and we look forward to working with the SEC on this matter. A reminder: https://t.co/SaacvrZEiU

paulgrewal.eth (@iampaulgrewal) July 26, 2022

Paul Grewal, Coinbase’s chief legal officer, disputes the SEC’s claims about Coinbase’s stock listing in a media post, citing that the Justice Department had no security fraud allegations against Coinbase while Nikhil Wahi, Ishan Wahi and Sameer Ramani are been accused of insider trading. . Grewal states that none of the assets to which the SEC charges relate qualify as securities.

Coinbase has a rigorous process for analyzing and reviewing each digital asset before making it available on our exchange, a process that the SEC itself has reviewed, Grewal writes. This process includes an analysis to determine if the asset qualifies as collateral and also considers the regulatory compliance and information security aspects of the asset.

Generally, a security is a marketable financial asset that has monetary value and must be registered with the SEC. The difficulty with cryptocurrencies, however, is that not all digital assets qualify as stocks. In 2018, former SEC Chairman Jay Clayton told CNBC that cryptocurrencies that replace government currencies, such as bitcoin and ether, are not stocks, but digital assets and tokens used in initial coin offerings (ICOs).

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If this sounds confusing, it is because it is. Last week, Coinbase filed a petition with the SEC (pdf) to clarify what exactly it considers a stock, arguing that the United States lacks a clear and workable regulatory regime. Coinbase argues that the SEC takes an application-centric approach rather than setting a set of rules that companies must abide by.

We are confident that our rigorous due diligence process, already reviewed by the SEC, will keep the securities off our platform, and we look forward to engaging with the SEC on this matter, Grewal wrote on Twitter.

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