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Digital assets fund manager Grayscale Investments revealed the United States Securities and Exchange Commission (SEC) has urged the company to withdraw its application for its Filecoin Trust, warning its underlying digital token Filecoin (FIL) “meets the definition of a security.”
According to an annoucement on May 17, Grayscale said it received a comment letter from the SEC, stating that Filecoin’s FIL token meets the definition of a security under the relevant laws. In addition, the regulator warned Grayscale to withdraw its application to make its Filecoin (FIL) Trust product more like a public company. The leading asset manager explained that in its view, Filecoin is not a security and it would be sending an explanation to the SEC. In response to the SEC complaint, Grayscale wrote,
“We do not believe that FIL is a security under the federal securities laws and intends to respond promptly to the SEC staff with an explanation of the legal basis for Grayscale’s position.”
Grayscale says SEC is claiming Filecoin's FIL token meets the definition of a security. pic.twitter.com/eJ3wXg8N0X
— Steven (@Dogetoshi) May 17, 2023
Grayscale In Hot Water
As per the May 17 announcement, Grayscale had initially filed a Form 10 with the SEC, to make its Filecoin Trust product a reporting company under which it would have been required to file quarterly and annual reports. Furthermore, the asset manager noted it’s difficult to tell whether the US regulator’s staff will agree with it in terms of the assessment that Filecoin is not a security.
However, if their communication fails to persuade the American regulator, Grayscale may have to seek accommodations in the quest to register the Filecoin Trust. Alternatively, the investment firm warned that it may be forced to dissolve the trust in its entirety.
This is not the first litigation between Grayscale and the SEC. The leading asset manager had previously filed a lawsuit against the agency in June 2022 after the SEC rejected its application to turn its Grayscale Bitcoin Trust (GBTC), into an exchange-traded fund (ETF).
SEC Continues Targeting Crypto Companies
It remains unclear why the SEC specifically targeted the company’s Filecoin Trust. However, since the collapse of Sam Bankman-Fried’s FTX Empire, the regulatory agency has beffed up its clamdown on crypto. The crackdown on crypto has been a major cause for the falling prices as US regulatory agencies like the SEC, and Commodity Futures Trading Commission (CFTC) continue to target digital asset firms.
@SECGov has issued another subpoena to Marathon Digital.
Marathon Digital is a US based #Bitcoin mining firm.
The subpoena relates to ongoing investigation tied to Marathon Digital facility in Montana.
Marathon stated that #SEC may be investigating whether or not there have…
— CryptoSmind (@SmindCrypto) May 11, 2023
Recently, Bitcoin (BTC) mining firm Marathon Digital Holdings received a subpoena from the SEC related to alleged violations of securities laws. Over the past few months, the US regulatory agency has targetted several prominent cryptocurrency companies, including Coinbase, Kraken, and Beaxy among others.
It was also reportedly planning to sue stablecoin issuer, Paxos Trust Company, over violating investor protection laws in its issue of the Binance USD (BUSD) stablecoin. In April, the SEC also sued Bittrex, alleging it broke the regulator’s rules from 2017 through 2022 while bringing in at least $1.3 billion in revenue.
Industry Leaders Voice Out Dissent Against SEC
However, in the face of adversity, many industry figures and officials from the financial industry, including The Blockchain Association, the United States Chamber of Commerce and Patrick McHenry, Chair of the House of Representatives Financial Services Committee among other industry veterans, have come out in support of the digital assets sector.
#NEW: Chairman @PatrickMcHenry, Subcommittee Chairman @RepFrenchHill, and all members of the Committee's Republican leadership team sent a comment letter slamming @SECGov's disastrous custody proposal and demanding its withdrawal.
👇 Read more 🔗https://t.co/l9rMtwfJUy pic.twitter.com/4rzG5etjON
— Financial Services GOP (@FinancialCmte) May 11, 2023
Moreover, US Senator Cynthia Lummis had recently, slammed Scott Shay, the former chairman of the now-defunct Signature Bank, for trying to place the blame for the bank’s collapse on digital assets while pocketing millions of dollars in bonuses and stock options. Instead of admitiing their own faults, the banking executives of collapsed Silicon Valley Bank (SVB) and Signature Bank, had conveniently put the blame on cryptocurrencies.