The SEC has brought numerous cases in which it alleged that specific tokens were “securities” and that their offerings violated the securities laws.  Those cases were typically brought against the issuers.  However, the SEC upped the ante in a lawsuit it brought on July 21, 2022 in which the SEC declared that nine cryptocurrencies were “securities,” but in a case not brought against the issuers.

The lawsuit is the SEC’s first insider trading case dealing with cryptocurrencies.  The complaint alleges a fairly typical insider trading scheme.  Defendant Ishan Wahi worked for a well-known cryptocurrency platform.  He helped coordinate the platform’s public listing announcements that included what crypto assets or tokens would be made available for trading. According to the SEC’s complaint, the platform treated such information as confidential and warned its employees not to trade on the basis of, or tip others with, that information. However, from at least June 2021 to April 2022, according to the complaint, and in breach of his duties, Ishan repeatedly tipped the timing and content of upcoming listing announcements to his brother and to his friend, defendants Nikhil Wahi and Sameer Ramani. 

An announcement that a particular token will be sold on the platform usually results in an increase in the assets’ prices.  The complaint alleges that, ahead of those announcements, Nikhil Wahi and Ramani allegedly purchased the relevant crypto assets and then typically sold them shortly after the announcements for a profit. The long-running insider trading scheme generated illicit profits totaling more than $1.1 million.

According to the complaint, the defendants allegedly purchased at least 25 crypto assets.  The SEC alleged that nine of them were “securities,” which was the predicate for the allegations of the securities law violations.  In the complaint, for each of the nine — AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX and KROM — the SEC went through a Howey analysis to support its conclusion about the tokens being securities. 

The SEC’s complaint, filed in federal district court in Seattle, Washington, charges the defendants with violating the antifraud provisions of the securities laws and seeks permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against all three individuals.

There has been much criticism of the SEC in the area of cryptocurrencies because of its failure to set forth clear regulatory standards.  Reaction to this lawsuit was quick.  Commodity Futures Trading Commission (CFTC) Commissioner Caroline Pham issued a Statement that included the following:

The case SEC v. Wahi is a striking example of “regulation by enforcement.”  The SEC complaint alleges that dozens of digital assets, including those that could be described as utility tokens and/or certain tokens relating to decentralized autonomous organizations (DAOs), are securities.

The SEC’s allegations could have broad implications beyond this single case, underscoring how critical and urgent it is that regulators work together.  Major questions are best addressed through a transparent process that engages the public to develop appropriate policy with expert input—through notice-and-comment rulemaking pursuant to the Administrative Procedure Act.  Regulatory clarity comes from being out in the open, not in the dark.

In connection with this inter-agency battle, it is worth noting that the recently proposed bi-partisan legislation in the Senate favors the CFTC as the primary regulator of digital assets (click here). 

The potential implications of the SEC’s identifying these nine assets as securities are obvious.  Securities exchanges must be registered with the SEC.  There are undoubtedly numerous cryptocurrency platforms that sell the nine tokens and which are not so registered.  Will the SEC next train its sights on those platforms?


David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. David has been included in Chambers for his expertise in international arbitration. He is the editor of the firm's blockchain blog.