New ruling in SEC’s Coinbase insider trading lawsuit comes as a blow to the crypto industry as judge finds secondary token sales were securities

On Friday, a federal judge in the Western District Court of Washington issued a ruling in the case against Samani. The ruling, which agreed in part to the SEC’s request for a default judgment, could have serious implications for both Ramani and the broader crypto industry.

In the decision, Judge Tana Lin ruled that the case fell under the SEC’s jurisdiction because the crypto assets at issue were securities, even though they were traded on Coinbase, a secondary market. As courts grapple with the question of when crypto assets are securities, the decision is the strongest decision yet by a federal judge to support Chair Gary Gensler’s argument that the vast majority of the industry’s activity falls under its remit.

Howey and its discontents

Since the rise of cryptocurrencies like Bitcoin and Ether, regulators have wrestled with how to classify digital assets. Should they fall under the category of securities like bonds and stocks, or commodities like gold and wheat?

Currently, the only cryptocurrency with regulatory clarity is Bitcoin, which the Commodity Futures Trading Commission declared to be a commodity in 2015. Other assets have remained in a gray zone. As a result, when exchanges like Coinbase offer cryptocurrencies for trading, they have operated under legal risk, despite declaring their belief that crypto assets should fall under a different regulatory category.

Starting with SEC Chair Jay Clayton, and continuing under Gensler, the SEC has pursued a campaign of enforcement actions…