Former Coinbase Employee Arrested, Company Pushes Back on SEC's Legal Argument Coinbase's Chief Legal Officer Paul Grewal disputed some of the agency's assumptions in a blog post.

The Securities and Exchange Commission on Thursday announced insider trading charges against former Coinbase employee Ishan Wahi, as well as his brother, Nikhil Wahi, and his friend, Sameer Ramani.

Also on Thursday, the Department of Justice announced the unsealing of an indictment with charges for wire fraud and wire fraud conspiracy against the group. The Wahi brothers were arrested while Ramani remains at large.

They have all been accused of running an insider trading operation. In addition, the SEC's legal argument, which is a separate issue, has revived an ongoing controversy in the crypto world and prompted criticism from Coinbase on Friday.

Coinbase is the largest crypto exchange in the U.S. (but has faced other financial issues of late, namely, layoffs). When the company would announce it was planning to add a currency to its system, "the market value of [the] crypto assets typically significantly increased," the DOJ's complaint says, per the press release.

The agency contends that Ishan, who was part of this process at least 14 times starting last June, would tip off Nikhil or Ramani ahead of Coinbase announcing it was adding a currency to the exchange.

"As a result of the scheme, Nikhil Wahi and Ramani collectively generated realized and unrealized gains totaling at least approximately $1.5 million," the DOJ said.

In April, Crypto influencer Cobie spotted a big trade before Ethereum was added to Coinbase, and social media posts about the issue helped spark an investigation, Bloomberg reported.

When Coinbase went to meet with Wahi about the issue in May, he attempted to flee the country but law enforcement stopped him, the DOJ added.

But those were not the facts Coinbase disputed in a blog post on Friday.

"We cooperated with the SEC's investigation into the wrongdoing charged by the DOJ today," Grewal said in the post.

What they're taking issue with is the SEC classifying several crypto assets as securities.

This is the first case of its kind, as the DOJ noted, but whether or not the SEC's legal argument succeeds could have ramifications for the crypto world.

While the DOJ's complaint did not take this step, the SEC designated "at least" nine crypto assets a security. In response, Coinbase published a fierce blog post in which chief legal officer Paul Grewal pushed back on the SEC's argument CNBC reported Friday.

Securities are things that have value and that you expect to make money from, and the SEC regulates public ones.

"A digital token or crypto asset is a crypto asset security if it meets the definition of a security, which the Securities Act defines to include 'investment contract,' i.e., if it constitutes an investment of money, in a common enterprise, with a reasonable expectation of profit derived from the efforts of others," the SEC complaint says.

"During the relevant period… at least nine crypto asset securities that meet this definition," the complaint added.

"It's nuanced," said Jonathan G. Blanco, the CEO of NiftMint, who is not involved with the case.

Blanco told Entrepreneur that there are a lot of different ways you could look at it, but depending on the specific currency, if it walks like a security and talks like a security, it likely is.

Grewal argued that cryptocurrency needs its own rules and that this amounts to a power grab by the federal agency. "The SEC is relying on these types of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those assets that are not securities," he wrote.

Commissioner of the Commodity Futures Trading Commission, Caroline Pham did say the SEC's argument is a "striking example of 'regulation by enforcement,'" CNBC added.

"It's kind of a mess," Blanco said. "I think everybody in crypto is looking forward to more guidance from the SEC or governing bodies for that matter."

The SEC and Coinbase did not immediately respond to a request for comment on the blog post.