This year alone, the SEC has issued several lawsuits and Wells Notices to companies like Uniswap, OpenSea, and now Crypto.com.
Instead of waiting for enforcement action, Crypto.com took the offensive and sued the SEC, Gensler, and four other commissioners.
Crypto.com and other companies want joint regulatory clarity between the SEC and CFTC on what is or isn’t a security.
The outcome of these cases will have long-standing implications for the crypto industry.
The US Securities and Exchange Commission (SEC) has been widely criticized over the years for its harsh regulatory stance.
Under the leadership of its current chair Gary Gensler, the agency has handed out dozens of lawsuits against crypto companies and individuals.
However every once in a while, one of these companies fights back and even wins as we saw with Grayscale in August 2023.
This time, Crypto.com has filed a lawsuit to wage legal war against the SEC, Gensler, and four other commissioners.
The development came after the exchange received a Wells Notice from the regulator.
Let’s go over the full details.
On 22 August, the SEC sent Crypto.com a Wells Notice—a sort of “be ready for a lawsuit” letter.
This Wells Notice marked another flashpoint in the multi-year regulatory tension between the agency and the crypto industry.
Crypto.com decided to take the offensive and sue the SEC outright.
Within the new suit, Crypto.com aims to prevent the US agency from expanding its authority to secondary-market sales of some tokens it currently offers.
The company claims that the SEC’s intention to come after it because of such an issue is both unlawful and damaging to the future of crypto in the U.S.
Crypto.com’s CEO Kris Marszalek took to Twitter (X) to publicly defend the lawsuit.
He described it as a necessary response to the SEC’s “regulation by enforcement” approach.
An “unwarranted response”
Marszalek emphasized that this aggressive approach the SEC continues to take has negatively affected over 50 million U.S. crypto holders.
He also stated that the lawsuit is not just about protecting Crypto.com. Instead, it is also about safeguarding the broader crypto ecosystem.
Over the last five years, the US SEC has always relied on enforcement action as its main tool for regulating the crypto market.
Crypto.com is not the first company to receive a Wells Notice from the SEC.
In fact, other major players like Binance, Ripple, and Coinbase have also been targeted so far.
These companies like Crypto.com, argue that the agency lacks clear regulatory guidelines and is killing innovation within the country.
Recall that earlier in the year, the Uniswap DEX received a similar Wells Notice which it openly criticized and urged the SEC to withdraw.
Only a few months later in August, NFT marketplace OpenSea was issued a similar one.
Within the notice, the SEC accused the platform of selling securities in the form of NFTs amid widespread criticism.
Crypto.com’s lawsuit which was filed by Foris DAX Inc., its Delaware-incorporated subsidiary is seeking clarity and injunctive relief.
The exchange hopes to prevent the SEC from expanding its jurisdiction over the secondary market sales of network tokens.
In detail, these tokens except for Bitcoin and Ethereum were classified by the SEC as securities—which triggered the Wells Notice.
The SEC is accusing Crypto.com of operating as an unregistered broker-dealer and securities clearing agency.
These claims have so far been contested by the exchange, amid claims that such tokens do not fall under the SEC’s regulatory umbrella.
In addition, Crypto.com also filed a separate petition to urge the SEC and CFTC to establish joint clarification about what is a security and what isn’t.
Specifically, the petition wants clarity on whether certain crypto derivatives fall under the jurisdiction of the CFTC or the SEC.
Crypto.com’s lawsuit also shows that the SEC had been investigating the exchange for over two years.
The formal investigation began on March 28, 2023. This has raised questions about the timeline and scope of the SEC’s actions.
So far, the SEC (which typically does not comment on ongoing investigations) has remained mute amid requests for comment.
In the end, this lawsuit adds to the growing number of disputes between the SEC and other major companies as the industry tries to push back.
As the agency continues to issue Wells notices to major companies, the uncertainty in the industry continues to mount.
Without clear guidelines, crypto companies continue to argue that they are being unfairly targeted by the CFTC and the SEC especially.
Marszalek’s comments show the general sentiment among crypto execs in the space:
“The current regulatory environment is holding growth and innovation back”.
In addition to a similar move by companies like OpenSea and Ripple, taking the SEC to court stands as a bold statement.
These actions could have far-reaching consequences for the future of crypto regulation in the U.S.
As the ongoing case unfolds, it will likely be watched by other crypto companies and regulators.
The outcome of Crypto.com’s lawsuit could shape the trajectory of US crypto policies in the years to come.
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