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Crypto.com filed a lawsuit against the US Securities and Exchange Commission after receiving Wells notice, signaling future prosecution. The SEC seeks to cast most crypto transactions as securities transactions, greatly tightening restrictions on the industry.
Crypto.com is not the first company to file a preemptive lawsuit over this issue, but as of yet, there is no clear conclusion.
Crypto.com CEO Responds to Wells Notice
The development began on the morning of October 8, when the SEC sent a Wells notice to Crypto.com. A Wells notice is a declaration from the SEC that its investigation of a company is over, and that it seeks to prosecute it. In response, Crypto.com’s CEO Kris Marszalek announced that he would sue the SEC first.
“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. The SEC’s unauthorized overreach and unlawful rulemaking regarding crypto must stop,” Marszalek said.
Read more: What Does It Mean To Receive a Wells Notice From the SEC?
Crypto.com’s official statement regarding this lawsuit was direct and bellicose. It claimed that improper attacks from the SEC are “part of the process” of running a legitimate exchange, and that regulator actions against the industry left Crypto.com with “no other choice”. It even added that this prosecution goes against the growing bipartisan pro-crypto consensus in government.
In short, Marszalek and Crypto.com have depicted the SEC’s impending lawsuit as wholly illegitimate. They claim that the SEC is seeking to consider nearly every crypto asset transaction a securities transaction, minus Bitcoin and Ethereum. The firm even filed a petition to the SEC and CFTC, asking for explicit confirmation that some crypto assets are in fact commodities.
The SEC’s War on Exchanges
This preemptive strike mirrors a similar action from Consensys this April. In response to the threat of impending prosecution, it also launched a lawsuit against the SEC, over the same concern about securities transactions. This lawsuit was dismissed in late September, and there has been no satisfying answer to any of these questions.
Essentially, Marszalek may have a point in describing this suit as an act to “protect the future of crypto”. Commodity regulations are looser than securities, and that’s a big part of why Bitcoin and Ethereum are considered commodities. However, if every single other asset is held to a higher standard, it would have dramatic effects on the entire industry.
Read More: What Is the Howey Test and How Does It Impact Crypto?
For now, this legal battle is in the very early stages. Cronos (CRO), a native token built on Crypto.com’s blockchain, has dropped in price since the announcement. Other than this slightly bearish omen, however, the proceedings are unclear. Marszalek and his team will likely pursue this case to the fullest, and hopefully, it will clarify all exchanges’ legal status.