Crypto.com has announced that it has sued the SEC after the crypto exchange received a Wells Notice – which indicates it faces at least a potential lawsuit from the agency. The company says it hopes to protect the future of the crypto industry in the country.
Kris Marszalek, co-founder and CEO of Crypto.com, said on X that the company had filed a suit, saying: “This unprecedented action by our company against a federal agency is a warranted response to the SEC’s regulation by enforcement regime, which has hurt more than 50 million American crypto holders.”
Additionally, Crypto.com filed a petition with the CFTC and SEC to confirm through a joint interpretation that certain cryptocurrency derivative products are “solely regulated by the CFTC.”
The lawsuit
According to the exchange, the move by the SEC “illustrates that 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.”
Both candidates for US president have articulated some statements of support for cryptocurrency businesses, releasing policy documents and promising a “safer business environment” for digital assets.
“For now, improper SEC enforcement actions are part of the process of operating a legitimate and licensed crypto business in the US. While this is an unprecedented move for our company to file suit against a federal agency, actions by that agency towards our industry have left us no other choice,” Crypto.com says in its lawsuit.
Crypto.com notes that identical transactions in bitcoin and ether are somehow not deemed by the SEC as regulated securities transactions.
Crypto.com says the SEC has “unilaterally expanded its jurisdiction beyond statutory limits.” The exchange also argued that the SEC has “established an unlawful rule that trades in nearly all crypto assets are securities transactions no matter how they are sold.”
Crypto.com notes that identical transactions in bitcoin (BTC) and ether (ETH) are somehow not deemed by the SEC as regulated securities transactions.
Crypto.com said in its statement announcing the lawsuit that its Crypto.com Derivatives North America (CDNA) unit has also filed a petition with the CFTC and SEC jointly. In that action, CDNA seeks to confirm by joint interpretation that certain crypto derivative products are solely regulated by the CFTC.
Citing joint rulemaking under the Dodd-Frank Act, Crypto.com stressed that any market participant is free to ask CFTC and SEC whether a product is a “swap,” a “security-based swap” or a “mixed swap.”
“Under these joint rules, the agencies have 120 days to either issue a jointly approved interpretation or to deny an interpretation,” Crypto.com stated. If authorities deny the requested interpretation, they should provide the reasons for not issuing the interpretation, the company said.
“The agencies must consult with the Federal Reserve Board of Governors and can also engage in joint rulemaking in consultation with the Fed,” Crypto.com added.
Crypto.com made a splash
Singapore-based Crypto.com is a platform that allows clients to buy and sell cryptocurrencies, and it offers a debit card which allows clients to spend digital assets and earn rewards.
The company launched a marketing blitz that gathered steam during the 2021 crypto bull market, after a splashy Super Bowl ad in January 2022 featuring Matt Damon. It then deciding to sponsor the home of the Los Angeles Lakers and also has sponsorship ties to the Ultimate Fighting Championship and Formula 1 racing.
In April, Crypto.com launched its app in South Korea on April 29, enabling the country’s 52 million citizens to trade in the app.
SEC crypto targets
The SEC has taken aim at some major crypto companies and brands under Chair Gary Gensler, who became head of the securities watchdog in 2021. Other prominent industry targets have included Coinbase, Consensys, Kraken, Ripple, and Uniswap, which have been targets of such notices or lawsuits in the past, with some still engaged in legal proceedings.
Each of them have similarly challenged the SEC’s categorization of cryptocurrencies, saying digital assets are not securities or investment contracts.
At the SEC, Commissioner Hester Peirce has been particularly vocal about the regulator’s failure to provide clear guidance about the status of digital assets, stating: “We’ve fallen down on our duty as a regulator not to be precise,” and saying the SEC should distinguish between the cryptocurrency token itself and any associated investment contract.