Crypto.com sues SEC for ‘illegal actions’ in crypto regulation following Wells Notice

Contesting the SEC's claims, Crypto.com aims to establish regulatory clarity and safeguard the crypto industry's future in the United States.

Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.

Today, Oct. 8, Crypto.com reported it has filed a lawsuit against the US Securities and Exchange Commission to challenge what it describes as the agency’s overreach in regulating the crypto industry. The company aims to protect the future of crypto in the United States by contesting the SEC’s authority and its methods of enforcement.

The legal action follows a Wells notice that Crypto.com received from the SEC staff, indicating potential enforcement action. The company argues that the SEC is engaging in unauthorized regulation by enforcement, acting beyond its legal mandate. This move aligns Crypto.com with other industry peers who are actively defending themselves against what they consider misguided actions by the federal agency.

Crypto.com’s lawsuit contends that the SEC has unilaterally expanded its jurisdiction beyond statutory limits. Specifically, the company challenges the SEC’s position that nearly all crypto asset trades are securities transactions, except for those involving Bitcoin (BTC) and Ether (ETH). Crypto.com argues that this stance is inconsistent and lacks a lawful basis, especially when other digital assets share virtually identical characteristics and are sold in the same manner as BTC and ETH.

The company also points out that the SEC failed to follow the mandatory notice and comment period required by the Administrative Procedure Act when establishing this rule. By bypassing this process, Crypto.com asserts that the SEC’s actions are arbitrary and capricious.

In addition to the lawsuit, Crypto.com’s affiliate, Crypto.com | Derivatives North America (CDNA), has filed a petition with both the Commodity Futures Trading Commission (CFTC) and the SEC. The petition seeks a joint interpretation to confirm that certain crypto derivative products are regulated solely by the CFTC. Under the Dodd-Frank Act, the agencies have 120 days to issue a jointly approved interpretation or to deny it with a written explanation.

Crypto.com emphasizes its commitment to compliance and regulatory oversight. In the United States, the company is registered as a money services business with the Financial Crimes Enforcement Network (FinCEN) and holds more than 40 state money transmitter licenses. CDNA is registered as a designated contract market and derivatives clearing organization with the CFTC. These registrations reflect the company’s adherence to various regulatory regimes applicable to its operations.

Crypto.com stated,

“We believe that security and compliance are the foundations of achieving mainstream cryptocurrency adoption[…]

We seek to stop the SEC’s illegal actions in excess of their authority and in violation of federal law in their tracks.”

The company is confident that recent court rulings against the SEC’s claims toward other crypto industry participants bolster its position. It trusts that the US judicial system will check the SEC’s actions and validate its claims.

By challenging the SEC’s approach, Crypto.com hopes to set a precedent that clarifies regulatory boundaries and fosters a more constructive environment for crypto businesses.

For now, Crypto.com assures its customers and stakeholders that “business is as usual” as the company continues to pursue “crypto in every wallet.”

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