July 21, 2022

SEC Calls Nine Crypto Tokens "Securities" in Insider Trading Case

Conor Almquist Commentary by Conor Almquist

In a civil Complaint alleging cryptocurrency insider trading, the SEC asserted that nine of the 25 cryptocurrencies implicated in the alleged scheme were "crypto-asset securities."

According to the Complaint filed in the United States District Court, Western District of Washington, Seattle Division, a former employee of a cryptocurrency trading platform disclosed material non-public information regarding the listing of certain cryptocurrencies on the exchange to family and friends, allowing those individuals to profit by purchasing the assets in advance. The SEC is claiming that nine of the assets are securities.

The SEC alleged that those specific cryptocurrencies would be considered crypto-asset securities because (i) the cryptocurrencies represented investment contracts and (ii) the issuers of those securities:

  • directly sold the securities to investors, which were then distributed to the investors' digital wallets;
  • solicited investors by touting the potential for profits to be earned from investing in the securities based on the efforts of others; and
  • emphasized the ability for investors to resell the tokens in the secondary market.

The crypto-assets alleged to meet the criteria for consideration as a security include AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX and KROM.

In connection with this action, the DOJ issued an indictment with parallel criminal proceedings.


The SEC's Complaint is particularly striking for its potential substantial impact on parties that played no role in the insider trading at issue. Regardless of the quality of the SEC's analyses of the crypto-assets, it is undoubtedly frustrating for an entity that has been operating and offering tokens for years to discover that its products may be determined to be a security by way of a civil complaint to which it is not a party. This is a strong reminder to all participants in digital markets that there is still a great deal of regulatory uncertainty in the space and that lack of direct action from the SEC as to any particular asset should not be viewed as an indicator of the SEC's regulatory position.

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