Crypto.com filed a lawsuit against the Securities and Exchange Commission Tuesday, contending the regulator “unilaterally expanded its jurisdiction beyond statutory limits.”
The exchange’s suit, which adds to the list of crypto firms engaged in legal battles with the SEC, follows its receipt of a Wells notice, which the SEC typically sends a company before doling out an enforcement action.
The lawsuit also charges 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 and ether are somehow not.”
The rule is unlawful because it did not go through a notice and comment period as required by the Administrative Procedure Act, Crypto.com contends.
Co-founder and CEO Kris Marszalek posted on social media site X Tuesday that by his measure, the SEC’s “regulation by enforcement regime” has hurt more than 50 million American crypto holders. It's a common refrain in the crypto world, with Coinbase CEO Brian Armstrong speaking out against it and the SEC’s own commissioner Hester Peirce.
Crypto.com, in a statement released alongside the lawsuit, fashions itself as “the industry’s global leader for licenses, registrations and security certificates,” noting that it maintains more than 100 regulatory approvals globally and supports the establishment of regulations purpose-built for the digital economy.
“Recent rulings have made clear that crypto is not itself a security and thus is not an investment contract simply because it changes hands,” Marszalek said, referring in part to a 2023 ruling on Ripple’s XRP token, which said crypto was not a security when sold to the general public.
“For this reason, and many others, we continue to be very bullish on the U.S. crypto market and our imminent plans to expand our offerings to U.S. customers,” he said.
An SEC spokesperson said the commission does not comment on the “existence or nonexistence of a possible investigation.”
Due to the number of enforcement actions handed to crypto firms in recent years, the SEC is widely perceived as unamenable to the industry. Chair Gary Gensler posited last year that the industry is full of hucksters, fraudsters and scam artists.
It’s come into the limelight on both sides of the aisle this election season, with Democratic presidential candidate Vice President Kamala Harris pledging her support at an event last month and Republican presidential candidate and former President Donald Trump giving a keynote at the Bitcoin 2024 conference in July.
Marszalek said that Crypto.com also filed a petition with the Commodity Futures Trading Commission and the SEC to confirm crypto derivative products categorization.
Per joint rules under the Dodd-Frank Act, any market participant is free to ask the CFTC and SEC whether a product is a “swap,” “security-based swap” or “mixed swap”; and the agencies have 120 days to issue a jointly approved interpretation or to deny an interpretation. With a denial, they must explain why publicly. They must also consult with the Federal Reserve Board of Governors during this process.
Despite the Wells notice and while it awaits an answer to its petition, Crypto.com will “continue on our pursuit of crypto in every wallet,” the firm said.
