KEY POINTS
- Crypto.com slammed the SEC for inventing a new term to regulate crypto without statutory authority
- It also called out the regulator for targeting crypto even with bipartisan signals of support
- A crypto lawyer commended Crypto.com for standing up to the SEC instead of 'rolling'
Cryptocurrency exchange Crypto.com has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC), joining a growing number of crypto companies challenging the Wall Street regulator's enforcement-first approach toward the industry.
The exchange revealed Tuesday that it decided to file a lawsuit after receiving a Wells notice from Commission staff. Several other firms with crypto services and offerings have also been slapped with a Wells notice in recent months, including fintech titan Robinhood.
A Regulatory Approach That Has Left Crypto Firms With No Choice
Crypto.com said the Wells notice ultimately illustrated how the SEC had been implementing "unauthorized and unjust regulation" against crypto firms.
"For now, improper SEC enforcement actions are part of the process of operating a legitimate and licensed crypto business in the U.S. While this is an unprecedented more for our company to file suit against a federal agency, actions by that agency towards our industry have left us no other choice," the exchange said in a statement.
The crypto exchange also pointed out that the financial regulator has been pushing its crusade against the sector, even as there have been bipartisan signals that the next administration will take a more constructive approach.
Inventing a New Term to Restrain the Booming Industry
In its lawsuit, Crypto.com called out the SEC for coming up with a "newly defined financial instrument called a 'Crypto Asset Security'" that the regulator has been using in its lawsuits against crypto firms, claiming that crypto asset securities are subject to SEC rules.
"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 is jurisdiction over the digital asset industry," the lawsuit stated.
Crypto.com said the regulator was now "threatening" an enforcement action against the exchange over "secondary-market sales of network tokens on its platform, even though the SEC does not have jurisdiction over those sales," the complaint added.
Community Stands With Crypto.com
The crypto community on X expressed support for Crypto.com's legal battle, including prominent trader Satoshi Stacker, who said he was glad to see the exchange "pushing back" on the SEC.
LFG. Glad to see you are pushing back.
— Satoshi Stacker (@StackerSatoshi) October 8, 2024
Lawyer James Murphy, also known as MetaLawMan, commended the exchange for "responding to SEC threats with offensive tactics" instead of "rolling" after receiving a Wells notice.
Today @cryptocom preemptively sued the SEC in Texas in response to an SEC Wells Notice.
— MetaLawMan (@MetaLawMan) October 8, 2024
The Wells Notice simply reiterates claims the SEC has made against other crypto markets like @Coinbase & @Binance.
Rather than rolling over, https://t.co/ZJNeMIG6JA is following the…
Many crypto groups across the broader blockchain sector joined in the unity call for Crypto.com.
The $VSG community stands with you @kris , united we are stronger 💪💎 @VECTORCOIN #FUKTHESEC pic.twitter.com/P3ZxOkHw7d
— MK_CRYPTO $VSG #VSC (@cryptel0509) October 8, 2024
#crofam stand with you! pic.twitter.com/Tt3sodxaqS
— 𝐒𝐡𝐚𝐫𝐤ᵈᵒᵍ ᶜʳʸᵖᵗᵒ🦈 (@NFTDigiart) October 8, 2024
SEC's Wells Notices This Year
Crypto.com is just the latest crypto firm to have received a Wells notice from the SEC. Since earlier this year, the regulatory agency had been issuing notices here and there, drawing outrage from a community that's grown weary of the Gary Gensler SEC's antics.
In August, the SEC slapped non-fungible token (NFT) marketplace OpenSea with a notice, which OpenSea said was a move into "uncharted territory."
Robinhood revealed in May that it received a notice even after its crypto arm, Robinhood Crypto cooperated with the SEC in its investigation regarding RHC's crypto listings.
A month earlier, decentralized on-chain marketplace Uniswap also suffered the same fate. At the time, Uniswap CEO Hayden Adams said that while he was disappointed over the Wells notice, he was "confident" that the marketplace's "work is on the right side of history."
Aside from a piling list of companies with Wells notices, the SEC also has multiple other ongoing lawsuits against crypto firms, including its cases with Coinbase and Ripple.
