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A former product manager at cryptocurrency exchange Coinbase has moved to dismiss charges of alleged insider trading, with his lawyers arguing the tokens he allegedly traded were not securities.

Lawyers representing ex-Coinbase employee, Ishan Wahi, and his brother, Nikhil Wahi, filed a motion on Feb. 6 in the United States District Court for the Western District of Washington to dismiss charges laid b the Securities and Exchange Commission (SEC).

In July last year, the SEC charged the brothers and their associate, Sameer Ramani, with insider trading alleging the trio made $1.1 million using Ishan’s tips on the timing and names of tokens in upcoming Coinbase listings.

In an over 80-page document, the lawyers outlined how the SEC was “wrong” in its charges.

They argued the cryptocurrencies allegedly traded by the Wahi’s did not fit the legal definition of a security as they had no “investment contract […] Written or implied” and compared them instead to baseball trading cards and beanie babies.

Lawyers for the Wahi brothers argued the tokens allegedly purchased by the pair are akin to physical baseball cards, such as those pictured, which can sell for thousands. Image: Twitter

They backed their argument further saying token developers have “no obligations whatsoever” to buyers on the secondary markets, adding:

“With zero contractual relationship, there cannot be an ‘investment contract.’ It is that simple.”

The tokens, the lawyers argued, were also all utility tokens and emphasized their primary use is on a platform rather than used as an investment product.

“None of the tokens were like stock […] The very object of each token was to facilitate activity on the underlying platforms and, in so doing, enable each network to develop and grow.”

The Wahi brothers and Ramani purportedly purchased at least 25 cryptocurrencies before the Coinbase listings — of which at least nine the SEC asserts to be securities — before selling them for a profit shortly after their listing.

Lawyers slam SEC for regulatory muscling

The Wahi’s lawyers lambasted the SEC for its apparent attempt at “trying to seize broad regulatory jurisdiction over a massive new industry via an enforcement action.”

They said the regulator “lacks clear congressional authorization to deem the tokens at issue to be ‘securities,’” and added:

“If the SEC really believes digital assets are securities, it should engage in a rulemaking or other public proceeding explicating that view and providing guidance to regulated parties on its implications.”

Commodity Futures Trading Commission (CFTC) commissioner, Caroline Pham, has previously expressed concern at the possible “broad implications” of the case.

Related: Did dYdX violate the law by changing its tokenomics?

She said the SEC’s actions don’t address the question of if some cryptocurrencies are securities through a “transparent” process that develops “appropriate policy with expert input.”

The Wahi brothers and Ramani also faced charges from the U.S. Attorney’s Office for the Southern District of New York relating to wire fraud and wire fraud conspiracy.

Nikhil pleaded guilty to the charges and was sentenced to 10 months in prison for wire fraud conspiracy in January. Ishan pleaded not guilty to the charges in August 2022. Ramani seemingly remains at large.

The motion was signed by 10 attorneys from five separate law firms.

If the motion to dismiss is denied by District Judge Tana Lin, the case will continue.