‘Securities’ label in SEC insider case may have broad crypto impact

“They’ll wait and then if the court agrees with them, of course at that point the exchanges themselves will be forced to register,” Reiners said. “To me, maybe it’s a longer process to getting to a desired outcome, but I think in the SEC’s case it’s a more surefooted way to get to the desired outcome, which is to have crypto exchanges brought into the securities regulatory perimeter.”

In the insider trading case, the agency charged Ishan Wahi, 32, of Seattle, with tipping his brother and a friend off about which cryptocurrencies were about to be traded on the platform, allowing them to profit from a jump in prices, according to a complaint filed in the U.S. District Court for the Western District of Washington. The Justice Department also brought charges against all three for wire fraud. 

Crypto backers have criticized the SEC’s approach, calling it regulation by enforcement. Critics have warned that crypto is rife with fraud and is harming retail investors. Over the past year, SEC Chair Gary Gensler has said that most cryptocurrencies are investment contracts and thus securities. Crypto exchanges are also likely trading securities and should be regulated, Gensler has said.

Reiners said the SEC’s move finally backed up what Gensler has been saying for a while. 

“So this is sort of like the SEC walking the talk,” he said.