- Crypto.com has sued the SEC, claiming violations of its rights after receiving a Wells Notice accusing it of operating as an unregistered broker-dealer and securities clearing agency.
- The lawsuit challenges the SEC’s authority to classify certain digital assets as securities and parallels Ripple’s ongoing legal battle, emphasizing the uncertainty surrounding cryptocurrency regulations.
- The outcome of this case could have significant implications for regulatory compliance in the cryptocurrency industry and affect how digital assets are classified in the future.
One of the largest cryptocurrency exchanges in the world, Crypto.com has just filed suit against the U.S. Securities and Exchange Commission (SEC), accusing the agency of infringing its rights as a company.
The case comes 2 months after Crypto.com received a Wells Notice – a formal notification issued by the SEC to alert an individual or company that the SEC intends to take enforcement action against them. At the time, the Wells Notice accused the exchange of operating as an unregistered broker-dealer and securities clearing agency under federal securities laws. Additionally, the SEC raised concerns over the exchange’s alleged engagement in unregistered securities offerings.
As a response to the Wells Notice, Crypto.com now accused the commission in a 48-page lawsuit of infringing upon its rights, including a violation of the Administrative Procedure Act (APA) – specifically by not allowing the public to give feedback on new rules.
“Rather than relying on statutory authority or undertaking notice-and-comment rulemaking,” the complaint reads, “the SEC invented the term ‘Crypto Asset Security’ out of whole cloth to expand its jurisdiction over the digital asset industry.”
The suit states that the SEC has been unclear about what counts as security, making it hard for businesses to grow and innovate. The lawsuit also questions whether the SEC has the legal grounds to classify certain token trades as securities.
Crypto.com claims that the Commission’s take on the classification of Targeted Network Tokens as securities is incorrect under the ‘Securities Act’ and the ‘Exchange Act’. The company also claims that the SEC has acknowledged this in several administrative and federal court cases involving other Cryptocurrency companies.
The filing also points to a statement from SEC Commissioners Hester Peirce and Mark Uyeda – when both actors openly criticized the commission’s take on cryptocurrencies this year. Besides asking for help under the APA, Crypto.com also asks the court to issue a clear statement about the legal rights of everyone involved in this case, as allowed by the Declaratory Judgment Act.
Implications for the Industry
This lawsuit shares a lot of similarities to Ripple’s case against the SEC which started in December 2020. At the time, the commission alleged that Ripple’s sale of XRP constituted an unregistered securities offering. Both cases challenge the SEC’s authority to classify certain digital assets as securities. Just like Ripple argued that XRP is a currency rather than a security, Crypto.com is asserting that its transactions do not fall under the definition of securities transactions.
Also, Ripple has also pointed out the lack of regulatory guidelines, which creates an environment of uncertainty for crypto businesses – making it difficult for companies to navigate compliance.
Similar to Ripple’s case – Crypto.com’s lawsuit could have a huge impact on not only the company but also the entire cryptocurrency sector. A legal win against the SEC could pave the way for a clearer legal ground for companies in this industry. Moreover, if the court agrees with the exchange’s stance that its transactions are not classified as “security transactions” – it could set a great precedent for the classification of cryptocurrencies as a whole.
Cronos Dips Following Lawsuit
Following the news, Crypto.com’s native currency Cronos (CRO) suffered a small tumble on the intraday charts. Data from CoinMarketCap shows a near 4% decrease over the last 24 hours while trading volume increased by over 100%. The decrease in value paired with the surge in volume indicates a significant selloff of the currency. In comparison, BNB gained over 2% in value in the same timeframe.
As the legal battle unfolds, Cronos is bound to see more volatile price fluctuations. Meanwhile, the cryptocurrency sector will closely follow the lawsuit – aware that its ruling can set important precedents that could shape the future of regulatory compliance in the industry.
