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The institutionalisation of cryptocurrencies continues at pace<\/a>. <\/p>\n The latest development: we have learned that some alt-coins are securities, because you can catch SEC charges for insider-trading them.\u00a0(Criminal charges too, though that\u2019s a different matter.) <\/p>\n The US Securities and Exchange Commission has charged a few lads<\/a> with trading alt-coins ahead of their listings on Coinbase Global\u2019s exchanges, which pretty reliably caused a bump in the coin price. And the US attorney in the Southern District of New York is bringing criminal charges against the trio<\/a>, claiming the wire-fraud charges are its \u201cfirst ever<\/a>\u201d insider-trading tipster case in cryptocurrency markets. (Contrast that<\/a> with its \u201cfirst ever digital asset<\/a>\u201d insider-trading case, where the guy with the inside information was trading on his own.)<\/p>\n Ishan Wahi<\/a>, a 32-year-old who was product manager at Coinbase until May of this year, is accused of sending tips about coin listings to his brother Nikhil Wahi, 26, and a friend named Sameer Ramani, age 33. US authorities say in their complaints that the pair bought coins ahead of the listings and sold them after, usually at a profit. <\/p>\n None of this activity fell anywhere close to a grey area for Coinbase, as the complaints say employees were repeatedly informed that this type of trading and disclosure was not permitted. From the SEC\u2019s complaint:<\/p>\n At all relevant times, Coinbase\u2019s employee policies stated that \u201cmaterial nonpublic information\u201d included \u201cinformation about a decision by Coinbase to list, not list, or add features to a Digital Asset [separately defined to include tokens].\u201d The policies further emphasised that Coinbase employees should never disclose material, nonpublic information to any other person, including family and friends, or tip others who might make a trading decision using that material, nonpublic information.<\/p>\n<\/blockquote>\n But the SEC\u2019s reach doesn\u2019t extend as far as you** might think.<\/p>\n While the trio allegedly traded 25 tokens ahead of their listing announcements, the SEC is only arguing that nine of them were securities. Also from the SEC complaint, with our emphasis: <\/p>\n Throughout the relevant period, Nikhil and Ramani repeatedly traded ahead of Coinbase listing announcements, trading in at least 25 tokens\u2009.\u2009.\u2009.\u2009this repeated pattern of Ishan tipping Nikhil and Ramani with inside information, followed by Nikhil and Ramani trading on that information, included trading in at least nine crypto asset securities<\/strong>, which were listed in seven of these announcements.<\/p>\n<\/blockquote>\n Those tokens are: Amp<\/a>, Rally<\/a>, DerivaDAO<\/a>, XYO<\/a>, Rari Governance Token<\/a>, LCX<\/a>, Powerledger<\/a>, DFX Finance<\/a> and Kromatica<\/a>.<\/p>\n This brings us back to our old friend the Howey test<\/a>. As we learned from the DAO<\/a> and our Alphachain project<\/a>, that test creates a few standards<\/a> that a token needs to meet before it can be considered a security. <\/p>\n In other words, big congrats to the folks who run AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX and KROM! The SEC says it\u2019s reasonable for investors to expect to make money based on your managerial efforts. You were able to list a security without the messy initial public offering process! <\/p>\n Does this mean that these trades would be allowed in tokens that aren\u2019t <\/em>securities? <\/p>\n Well, there is one big reason it\u2019s a bad idea: the Department of Justice\u2019s filing doesn\u2019t include arguments about the regulatory status of the tokens at all, because as we all know<\/a>, wire fraud charges<\/a> cover a wide array of financial crimes. <\/p>\n So if you\u2019re going to try to pull this type of scheme off*, you would need to avoid communicating with anyone electronically in interstate or foreign commerce, while using online digital-asset trading platform Coinbase, which has offices in Chicago, New York, Portland, London, Dublin and Tokyo. <\/p>\n\n
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