- Crypto.com has filed a lawsuit against the U.S. Securities and Exchange Commission over its regulatory stance on secondary-market sales of digital assets
- The lawsuit challenges the SEC’s claim that most digital tokens, except Bitcoin and Ethereum, are securities under its jurisdiction
- Crypto.com is seeking declaratory and injunctive relief to block the SEC from enforcing this expanded regulation
Major exchange Crypto.com is taking on the U.S. Securities and Exchange Commission (SEC) over what it calls the agency’s “unlawful expansion” of its regulatory reach. The company claims that the SEC has exceeded its authority by regulating secondary-market sales of digital tokens such as SOL, ADA, and BNB as securities. Crypto.com’s lawsuit, filed in the U.S. District Court for the Eastern District of Texas, seeks to halt the SEC’s enforcement actions against these tokens, arguing that such digital assets are not securities under existing U.S. law.
Crypto.com Decries “Regulation by Enforcement”
Crypto.com’s lawsuit stems from what it describes as the SEC’s “regulation by enforcement” strategy. This approach has involved filing lawsuits and threatening enforcement actions against several companies in the crypto industry, asserting that many tokens constitute securities under a term the SEC coined: “Crypto Asset Securities.”
Crypto.com’s complaint emphasizes that the SEC has gone beyond its legal limits, stating that the regulator “invented the term out of whole cloth” without statutory authority. The exchange also revealed that it was hit with a Wells Notice on August 22, which usually preempts legal action by the SEC.
Crypto Asset Securities Under Fire
At the heart of the conflict is the SEC’s classification of network tokens—such as those traded on Crypto.com—as securities. The SEC has taken this position in recent enforcement actions against similar platforms, which prompted Crypto.com to take preemptive legal action. According to the complaint, the SEC’s approach arbitrarily excludes Bitcoin and Ethereum while targeting nearly all other tokens, such as Solana (SOL), Cardano (ADA), and Binance Coin (BNB).
Crypto.com alleges that the SEC’s actions threaten its business model, which relies on secondary-market transactions of these tokens. The lawsuit argues that these tokens, much like Bitcoin and Ethereum, do not meet the legal definition of securities and are instead used to facilitate decentralized transactions on blockchain networks.
“The SEC has conceded in previous cases that these types of tokens are not securities,” the lawsuit states, adding that the SEC’s recent actions contradict its earlier positions.
A Call for Legal Clarity
Crypto.com’s lawsuit seeks a judicial declaration that these tokens are not securities, as well as an injunction to stop the SEC from pursuing enforcement actions. The company claims the SEC’s overreach has already caused significant legal and financial uncertainty in the industry. “Rather than rely on clear statutory authority,” the filing contends, “the SEC has opted to impose its own de facto rule without following proper procedures.”
This case could set an important precedent for how the U.S. regulates digital assets, with Crypto.com asking the courts to step in and limit what it describes as the SEC’s overzealous efforts.
