Paul Grewal, Chief Legal Officer at Coinbase, downplayed the significance of a recent court ruling classifying certain digital assets on secondary market trading platforms as securities in a social media post.

This ruling stemmed from an insider trading case involving Coinbase’s former product manager, Ishan Wahi, his brother Nikhil Wahi, and their friend Sameer Ramani.

In 2022, the US Securities and Exchange Commission (SEC) charged Wahi with leaking confidential information about upcoming Coinbase listings to Nikhil Wahi and Ramani.

Nikhil Wahi and Ramani then allegedly purchased the cryptocurrencies before their public listing, profiting from their sale post-listing.

In May 2023, the SEC settled charges with the Wahi brothers, while Ramani remained at large.

The ruling

On March 1, a US Court issued a default ruling against Ramani, identifying the cryptocurrencies involved as securities under the Howey Test.

According to the ruling:

“The Court’s analysis remains the same even to the extent Ramani traded tokens on the secondary market…Each issuer continued to make such representation regarding the profitability of their tokens even as the tokens were traded on secondary markets.”

Thus, the Judge concluded:

“Ramani’s illicit trading was accordingly in connection with the purchase or sale of a security.”

As a result, the court order prohibited Ramani from future violations, imposed a $1.6 million civil penalty, and ordered the disgorgement of $817,602 in identified proceeds. However, the court did not grant the SEC’s request for prejudgment interest.

Grewal’s response

The ruling raised concerns within the crypto community about its broader implications.

Grewal reassured the community, stating that default judgments “are not worth anything as precedent or persuasion” because “there is no one pushing back on anything the SEC says, [and] the judge is required under the applicable rule to take everything the SEC says in the complaint as true.”

He added:

“The judge here confirmed in her order that she only considered the SEC’s filings and did not consider any amicus briefs or other papers showing the fallacy of the SEC’s arguments.”

Grewal also criticized the SEC’s “insidious” strategy of suing “absent defendants and intermediaries” while ignoring “the people with the greatest incentive and access to information that blows their arguments out of the water.”