A key figure to emerge in the cryptocurrency industry's legal battle with the Securities and Exchange Commission is a former employee of the world's largest publicly traded cryptocurrency firm who was convicted of insider trading, the Wall Street Journal reports. Ishan Wahi, a former manager at Coinbase Global Inc., pleaded guilty in February to passing along trading tips that generated almost $1.5 million in illicit profits. Though he faces more than three years in prison and then deportation to his native India, Wahi is still fighting SEC claims that some of the Coinbase assets were securities, a critical question that could affect how digital assets get regulated in the U.S. Wahi's lawyers argued in a motion seeking dismissal of the civil case in Seattle federal court that the digital assets aren't securities, and thus the SEC has no role in regulating them. The industry hopes federal judges will find that crypto is too different from traditional stocks and bonds to fall under rules written for Wall Street. Because Coinbase is also a target of an SEC enforcement probe, Wahi’s prospects are aligned with the company’s, even though it fired him and cooperated with the investigations of his role in the insider trading.
The SEC’s staff last week told Coinbase it is likely to recommend enforcement action against the company over listing assets that regulators believe are securities, among other suspected violations, according to the company. If the SEC does sue Coinbase, the outcome could force the company to stop trading some of the digital assets it offers to its users and potentially alter the growth of the industry. The news of that possible action brought new attention to the escalating tension between the SEC and the industry and chopped 12% of Coinbase's share value, Reuters reports. For months the two sides have been in discussions over regulation and the agency's Coinbase investigation, sources told Reuters. The SEC appears to be going after Coinbase's entire business as operating outside of U.S. laws, one source said. "This is probably existential for Coinbase," said Joshua White, a finance professor at Vanderbilt University. "It’s perhaps existential for the industry, at least in the U.S." Kristin Smith, the CEO of the Blockchain Association, voiced the crypto industry association's support for Coinbase, noting: "The SEC doesn't make the law – it only makes allegations, which ultimately must be tested in the courts."