In a court filing on July 22nd, the US Securities and Exchange Commission (SEC) claimed that crypto exchange Coinbase has listed nine digital assets on its platform that are actually unregistered securities and not crypto tokens.
The nine assets that have been classified as unregistered securities by the San Francisco-based exchange are Rari Governance Token (RGT), Kromatike (KROM), XYO (XYO), Rally (RLY), DFX Finance (DFX), AMP (AMP), LCX (LCX), DerivaDEX (DDX) and Powerledger (POWR).
The SEC filed a complaint against a former employee of Coinbase for running an insider trading scheme. In this complaint, the securities regulator asserted that a crypto asset, or digital token, is considered a security if it has the characteristics of the security, as mentioned in the Securities Act.
The definition considers it an investment contract, which means a monetary investment in an enterprise with the profit expectation that will be generated through others’ efforts. According to the SEC, the nine assets mentioned above meet this criteria. It said that their management teams and issuers constantly advertised their investment value as well, along with secondary markets that can be used for trading these tokens.
Kromatika speaks up
The decentralized exchange (DEX) based on the Ethereum blockchain, Kromatica Finance launched the KROM token and it responded to the allegations of the SEC about the token being unregistered security.
The company tweeted that they had come to know that their token had been listed as unregistered security in an insider trading case. It said that the complaint involved an employee of the Coinbase Global exchange and had absolutely nothing to do with Kromatica or any of its employees.
Kromatica also asserted that Coinbase had not consulted its team about a potential listing. It said that they were certain that Coinbase would collaborate with the authorities and clarify that an isolated individual was responsible for the incident.
It should be noted that the relationship of the SEC with the crypto industry has been rather complicated, or hostile for the most part. The Commission has used enforcement action for regulating the crypto space since 2018. It has targeted startups that used initial coin offerings (ICOs) for raising funds.
According to the securities regulator, every token based on the Ethereum blockchain is unregistered security. It is because of its definition of security that the Commission filed a legal case against Ripple Labs, the company behind the XRP token, back in December 2020. The lawsuit is worth $1.3 billion and is still ongoing.
Former officials of the SEC had made it clear via public statements in the past that they do not consider Bitcoin (BTC) and Ethereum (ETH) securities. However, the current chairman of the authority, Gary Gensler has proven to be tight-lipped in this regard.
The only thing he said last month was that he does not consider Bitcoin to be a security, but refused to elaborate further and did not answer questions about Ethereum. As of now, it is unclear if it will take any legal action against Coinbase, or not.