Its North American arm has also filed a petition with the CFTC and SEC on the future of crypto derivative products categorisation.
Cryptocurrency exchange Crypto.com has filed a suit against the U.S. Securities and Exchange Commission (SEC) with the aim of protecting the future of crypto in the U.S.
The company’s decision to sue the SEC was made after it received a receipt of a Wells notice from the Commission. The SEC issues a Wells notice to individuals or firms they are investigating, signaling their intention to pursue legal action.
Kris Marszalek, Co-Founder & CEO of Crypto.com, spoke out on X social media platform about the company’s intentions to pursue legal action. His X thread states that “this unprecedented action by the 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. And to use all regulatory tools available to bring certainty to the industry through proper rulemaking, Crypto.com has also filed a petition with the CFTC and SEC to confirm crypto derivative products categorization.”
Adding on to his statement, Marszalek said, “While we welcome recent bipartisan support for the industry, that message has not been received by current SEC leadership that issued us a Wells notice. The SEC’s unauthorized overreach and unlawful rulemaking regarding crypto must stop. Recent rulings have made clear that crypto is not itself a security and thus is not an investment contract simply because it changes hands.”
The exchange emphasised that the SEC has continued to operate beyond its jurisdiction, and its lawsuit “contends that the SEC has unilaterally expanded its jurisdiction beyond statutory limits” and established an unlawful rule regarding crypto asset transactions, a rule which has not undergone proper review, and is both arbitrary and discriminatory.
Crypto.com also took the opportunity to express dismay at the mismatch between the positive, bipartisan indications that the next U.S. administration will take a constructive, effective approach, and the SEC’s heavy-handed approach.
The company stated that “improper SEC enforcement actions are part of the process of operating a legitimate and licensed crypto business in the U.S.” While this is a first for the exchange to file suit against a federal agency, it states that the actions by the SEC have left them no other choice.
Confirmation of Crypto Products Under CFTC Oversight
Additionally, Crypto.com’s North American arm has filed a petition with the Commodity Futures Trading Commission (CFTC) and SEC to confirm via joint interpretation that certain cryptocurrency derivative products are solely regulated by the CFTC.
Quoting the joint rulemaking clause under the Dodd-Frank Act, Crypto.com highlighted that the ruling allows any market participant to ask the CFTC and SEC whether a product is a “swap”, “security-based swap” or “mixed swap”.
Both agencies have 120 days to either issue a jointly approved interpretation or deny one. Denying the interpretation means the agencies must publicly provide the reasons for not issuing the interpretation. The agencies must consult with the Federal Reserve Board of Governors (the Fed) and can also engage in joint rulemaking in consultation with the Fed.
This latest development by Crypto.com once again shines the spotlight on the SEC’s actions against the crypto space. The agency has recently appealed the outcome of its case with Ripple Labs, which issues the XRP token, and also filed an enforcement action against Coinbase in June 2023 for operating as an unregistered securities exchange, broker and clearing agency. Coinbase is currently urging the court to reconsider an interlocutory appeal.
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