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Secondary token sales in the case of one of the Coinbase insiders were securities, a court ruled on Friday.
Sameer Ramani, accused of selling tokens in the Wahi brothers case, faces a default judgment from the court after allegedly leaving the country.
Ishan Wahi, a former Coinbase employee, was accused of insider trading by the Securities and Exchange Commission in 2022. The case is the first of its kind.
The SEC claimed that Wahi tipped off Nikhil Wahi and Ramani about some listing announcements for certain tokens that he claimed were securities. The three generated around $1 million in profits by buying and selling 25 crypto assets. The SEC alleged that nine of them were securities.
Ishan Wahi was sentenced last year to two years in prison, and both brothers reached an agreement with the SEC in June of last year.
The regulatory agency said the tokens fell within the definition of an investment contract because Ramani had a “reasonable expectation of profits derived from the efforts of others.” Judge Tana Lin agreed with the SEC’s allegations, due to some of the token’s management teams.
Read more: US judge questions SEC limits during Coinbase hearing
Social media posts, issuer offerings and other benefits were among the claims made by issuers to consumers through a variety of media including social media, interviews and white papers.
“Issuers explained to potential investors that secondary market liquidity was both a means for investors to earn returns and a way for broader market participants to participate in the issuers’ growth,” the document said.
Judge Lin concluded that “the illicit trade was, therefore, related to the purchase or sale of a security.”
“Therefore, under Howey, all crypto assets that Ramani purchased and traded were investment contracts,” he continued.
Unlike the Wahi brothers, Ramani never appeared in court. Friday’s ruling was issued as a default judgment because Ramani “appears to have fled the country.”
“Therefore, your failure to comply is not the result of excusable negligence. Rather, his failure arises from his desire to avoid the consequences of his actions,” Lin wrote.
Non-compliance, in this case, is important, Paul Grewal, chief legal officer at Coinbase explained in a post on X.
Because Ramani was not present to offer his side of the case, no one could refute the SEC’s allegations.
“Not only does no one reject anything the SEC says, but, under the applicable standard, the judge must take as true everything the SEC says in the complaint. No matter how far-fetched or just plain wrong it is,” he continued.
He further added that Judge Lin said she considered the SEC’s filings, and not any amicus curiae brief arguing against the regulatory agency’s claims.
Coinbase is currently embroiled in a court battle with the SEC. The regulatory agency stated that the exchange offers and sells unregistered securities. A claim that the exchange refuted.
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