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, an ex-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 Nikhil Wahi and Ramani off to some listing announcements for certain tokens it claimed were securities. The three generated around $1 million in profit from buying and selling 25 crypto assets. The SEC alleged that nine of those were securities.
Ishan Wahi was sentenced last year to two years in prison, and both brothers reached a settlement with the SEC in June of last year.
The regulatory agency said the tokens fell under the definition of an investment contract because Ramani had a “reasonable expectation of profit 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 supply, and other benefits were some of the claims made by the issuers to consumers through a variety of mediums including social media, interviews and white papers.
“The 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 filing said.
Judge Lin found that the “illicit trading was accordingly in connection with the purchase or sale of a security.”
“Thus, under Howey, all of the crypto assets that Ramani purchased and traded were investment contracts,” she continued.
Unlike the Wahi brothers, Ramani never appeared in court. The Friday ruling was issued as a default judgment because Ramani “appears to have fled the country.”
“His default is therefore not the result of excusable neglect. Rather, his default stems from his desire to avoid the consequences of his actions,” Lin wrote.
The default, in this case, is important, Coinbase’s Chief Legal Officer Paul Grewal explained in a post on X.
Because Ramani wasn’t present to offer his side of the case, no one was able to push back against the SEC’s allegations.
“Not only is there no one pushing back on anything the SEC says, the judge is required under the applicable rule to take everything the SEC says in the complaint as true. No matter how far fetched or plain wrong it is,” he continued.
He further added that Judge Lin said she considered the SEC’s filings, and not any amicus briefs arguing against the regulatory agency’s claims.
Coinbase is locked in a court battle with the SEC currently. The regulatory agency claimed that the exchange is offering and selling unregistered securities. A claim that the exchange refuted.
Don’t miss the next big story – join our free daily newsletter.
Source: https://blockworks.co/news/secondary-token-sales-sameer-ramani-coinbase