Crypto.com has filed suit against the Securities and Exchange Commission (SEC). The legal move follows the receipt of a Wells Notice, which indicates that SEC staff are recommending an enforcement action against the firm. Multiple crypto focused firms have been sued or are in receipt of Wells Notices from the SEC.
Crypto.com explained in a blog post that they are doing this to “protect the future of the crypto industry” in the U.S., joining a series of market participants who are said to be actively defending themselves and taking action against a “misguided” federal agency that is allegedly acting “beyond its authorization” under the applicable law.
Crypto.com said the SEC’s “unauthorized” and “unjust” regulation by enforcement campaign continues despite bipartisan indications that the next Administration will take a “more constructive” and effective approach to supporting crypto in the United States.
For now, Crypto.com says that “improper” SEC enforcement actions are part of the process of operating a “legitimate” as well as a “licensed” crypto-focused business in the U.S.
Although this is an “unprecedented” move for the company to file suit against a federal agency, actions by that agency towards the industry have left them “no other choice,” Crypto.com has claimed.
Notably, Crypto.com said that their lawsuit contends that the SEC has “unilaterally” expanded its jurisdiction beyond “statutory limits” and separately that the SEC has established an unlawful rule that “trades in nearly all crypto assets are securities transactions no matter how they are sold, whereas identical transactions in bitcoin (BTC) and ether (ETH) are somehow not.”
According to the update from Crypto.com, this unlawful rule never actually went through a notice and comment period that is typically required by the Administrative Procedure Act and furthermore the agency’s application thereof is described as “arbitrary” as well as “capricious,” especially when those crypto-assets possess virtually “indistinguishable” characteristics from and are sold in an identical manner as Bitcoin (BTC) and Ethereum (ETH).
Crypto.com says that they seek to stop the SEC’s “illegal actions” in excess of their authority and in “violation of federal law” in their tracks.
Crypto.com’s filing with full information on their suit is accessible here.
In addition to this, Crypto.com | Derivatives North America (CDNA) has reportedly filed a petition with the Commodities Futures Trading Commission (CFTC) and SEC to confirm through joint interpretation that certain cryptocurrency derivative products are “solely regulated by the CFTC.”
Crypto.com said that it remains committed to using all regulatory tools available to help bring certainty to the industry, including this petition for “joint rulemaking” under the Dodd-Frank Act.
The joint rules allow any market participant to ask the CFTC and SEC whether a product is a “swap”, “security-based swap” or “mixed swap”.
Under these joint rules, the agencies now reportedly have 120 days in order to either issue a jointly approved interpretation (including by seeking public comment) or to make the decision to “deny an interpretation.”
But if they deny the interpretation, they must “publicly” provide, in writing, the reasons for not issuing the interpretation.
As noted in the update, the agencies must consult with the Federal Reserve Board of Governors (the Fed) and can also participate in “joint rulemaking” in consultation with the Fed.
It is worth noting that in the U.S., Crypto.com is registered as a money services business with the Financial Crimes Enforcement Network (FinCEN) and maintains more than 40 state money transmitter licenses that enable our business to operate.
In addition to this, their affiliate CDNA is registered as a designated contract market (DCM) and derivatives clearing organization (DCO) with the CFTC.
These licenses and registrations are said to indicate their commitment to compliance with all of the various regulatory regimes in the U.S. that are applicable to our business.
Crypto.com added that they believe that security and compliance are the foundations of achieving mainstream crypto adoption.
Crypto.com also mentioned that their commitment to compliance has been our priority since the founding of their company in 2016.
Crypto.com also stated that they are confident that their “internationally recognized commitment” to regulatory compliance and the court rulings against the SEC’s claims towards crypto industry participants put them in a “winning position” to challenge their “unjust” actions.
While this may be unfortunate, Crypto.com says that they trust the U.S. Judicial Branch will help offer the “much-needed” check on the current SEC leadership’s “arbitrary” actions against crypto and validate our claims.
Their “success” in this matter will aim to “reaffirm” their compliant operation for the benefit of clients as well as the entire category in the United States.