Crypto.com has taken a firm step to push back at the increasingly muscular approach of the US Securities and Exchange Commission (SEC) by suing the agency after Crypto.com received a Wells Notice. The lawsuit claims that the SEC is overstepping their statutory authority by attempting to regulate secondary sales of network tokens (like Solana and Filecoin) under traditional securities laws and is similar to the action brought by Coinbase against the SEC as well as a popular song creator. This issue has stirred controversy for some time as exchanges grapple with the fundamental issue that, if crypto assets are regulated under traditional securities laws in the US as Mr Gary Gensler, SEC Chair, has repeatedly asserted, there is no path to compliance or legal way to offer them despite Chair Gensler telling projects to "come in and register".
A Wells Notice indicates the SEC’s intention to recommend enforcement action against a recipient, and are usually a harbinger of regulatory enforcement action. Crypto.com, however, isn’t backing down, arguing that the SEC’s approach to crypto is not only an overreach but also creates a de facto rule that essentially categorises almost all crypto assets as securities.
Crypto.com argues that this goes beyond the legal bounds of the SEC's jurisdiction, which is found in securities regulation—not digital commodities or goods. Calling the SEC a "misguided federal agency acting beyond its authorization under the law" on its website, Crypto.com has taken the fight directly to the SEC, seeking to put a stop to what they call the SEC's "illegal actions" which are "in excess of their authority and in violation of federal law". The company is seeking declaratory and injunctive relief against the SEC to limit it from taking enforcement action against the company.
This legal battle is part of a broader confrontation between the SEC and major crypto platforms. Industry heavyweights such as Coinbase, Robinhood’s crypto arm, and OpenSea have all found themselves on the SEC's radar, receiving similar Wells notices, while other such as Coinbase and Consensys have taken their battle to the SEC by launching rule-making petitions or administrative actions. There are also suggestions of a shadow campaign against the US crypto industry via Operation Chokepoint 2.0 to pressure banks to discontinue servicing the industry.
In its lawsuit, filed in Tyler, Texas, Crypto.com has named SEC Chair Gary Gensler and four other commissioners as defendants, adding a personal dimension to the dispute. Alongside the lawsuit, the exchange has filed a petition with both the SEC and the Commodity Futures Trading Commission (CFTC), seeking clarity on the jurisdictional oversight and framework for crypto derivatives. Crypto.com asserts that certain products should be under the exclusive purview of the CFTC, not the SEC.
While the CFTC has yet to respond, this legal confrontation marks another significant moment in the ongoing struggle over the future of digital assets regulation. Crypto.com’s case could set a precedent for how digital assets are regulated in the US, potentially reshaping the landscape for crypto businesses nationwide.
The outcome could also have ripple effects beyond the US, potentially influencing how cryptocurrency is regulated in Australia. Currently, Australia is working on its own regulatory framework for digital assets, with ASIC (Australian Securities and Investments Commission) and other government bodies keeping a close watch on international developments.
By Steven Pettigrove, Michael Bacina and Luke Misthos
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