- Crypto.com has filed a lawsuit against the SEC, its Chair Gary Gensler and its four commissioners alleging the regulator has unlawfully overstepped the mark in regulating the US crypto industry.
- The suit comes after Crypto.com was slapped with a Wells notice by the SEC in August, for allegedly selling unregistered securities through its platform.
The cryptocurrency exchange Crypto.com has sued the US Securities and Exchange Commission (SEC), its Chair Gary Gensler, and its four commissioners, alleging the regulator has unlawfully and unilaterally expanded its jurisdiction to oversee the US digital assets industry.
Crypto.com’s lawsuit comes after the SEC issued the exchange with a Wells notice in August, signalling the regulator’s intention to take enforcement action against the exchange.
In a separate filing, Crypto.com has also requested that the Commodity Futures Trading Commission (CFTC) and SEC issue a joint interpretation to confirm that some specific cryptocurrency derivative products are solely regulated by the CFTC.
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Crypto.com filed its lawsuit against the SEC yesterday in the federal court in Tyler, Texas. In the suit, Foris DAX Inc. (Crypto.com’s legal name) sought “declaratory and injunctive relief to prevent the Securities and Exchange Commission (“SEC”) from unlawfully expanding its jurisdiction to cover secondary-market sales of certain network tokens sold on Crypto.com’s platform.”
The exchange also took aim at the “crypto asset security” label which the SEC invented sometime in the past year or two, saying that “rather than relying on statutory authority or undertaking notice-and-comment rulemaking, the SEC invented the term Crypto Asset Security out of whole cloth to expand its jurisdiction over the digital asset industry.” It added that “the term has no foundation in the Securities Act or Exchange Act.”
In a statement published on its website, the exchange said it decided to fight the SEC in order to prevent the regulator from destroying the digital assets industry in the US:
We are doing so [suing the SEC] to protect the future of the crypto industry in the U.S., joining a series of our peers who are actively defending themselves and taking action against a misguided federal agency acting beyond its authorization under the law.
Crypto.com statementSEC Rule-making Unlawful and Arbitrary
In its statement, Crypto.com explains its view that the SEC has simply taken it upon itself to decide where its jurisdiction over the US crypto industry begins and ends, something that the exchange claims is both unlawful and arbitrary:
Our 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.
Crypto.com statementThe exchange further explained that the SEC’s newly invented rule designating almost all cryptocurrencies as securities is unlawful because the regulator didn’t follow the process laid out in legislation for creating these kinds of rules:
This unlawful rule never went through a notice and comment period required by the Administrative Procedure Act and furthermore the agency’s application thereof is arbitrary and capricious, particularly when those crypto assets possess virtually indistinguishable characteristics from and are sold in an identical manner as BTC and ETH.
Crypto.com statementOn X / Twitter, Crypto.com’s CEO, Kris Marszalek said that the lawsuit “is a warranted response to the SEC’s regulation by enforcement regime which has hurt more than 50 million American crypto holders.” He said that “the SEC’s unauthorized overreach and unlawful rulemaking regarding crypto must stop.”
In a separate filing, Crypto.com has petitioned the SEC and CFTC to issue a joint interpretation clarifying that some crypto derivatives are regulated solely by the CFTC. The regulators will now have 120 days to issue their joint interpretation, or they could opt to deny an interpretation, in which case they will need to provide a public, written explanation explaining their decision.
Industry Pushes Back Against Regulation Through Enforcement
Crypto.com’s lawsuit is the latest in a growing trend of crypto companies fighting back against SEC enforcement actions.
Recently crypto giants like Binance, Ripple, OpenSea and Uniswap have all opted to fight SEC’s legal action, possibly emboldened by growing support for the crypto industry on both sides of US politics.
Commenting about this growing political support and the industry-wide push-back against the SEC, Crypto.com’s CEO Marszalek said on X / Twitter “while we welcome recent bipartisan support for the industry, that message has not been received by current SEC leadership that issued us a Wells notice.”
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Marszalek also sounded a hopeful note despite the ongoing issues with the SEC, concluding his thread by saying “we continue to be very bullish on the U.S. crypto market and our imminent plans to expand our offerings to U.S. customers.”
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