The U.S. Securities and Exchange Commission has long been known to go after cryptocurrency companies that deal in “cryptocurrency asset securities.”
But now the agency is arguing that despite its clear use of the term “security,” there was no intention whatsoever to suggest that any of these tokens were actually securities.
In a footnote to its amended complaint against cryptocurrency exchange Binance, the agency states that when it refers to a cryptocurrency security, it refers to the entire contract, expectation, and understanding for the sale of that asset, not the cryptocurrency asset itself. In fact, the agency simply uses the term as an “abbreviation.”
The agency also claimed that it has always taken this position, citing supplementary text in its lawsuit against Telegram. However, the agency said it would not use the acronym in its lawsuit against Binance to clarify the situation, and “regrets any confusion.”
Cryptocurrency experts found this statement to be somewhat excessive.
“I was shocked,” Jake Chervinsky, Variant Fund’s chief legal officer, told X. “I had no idea gaslighting could be this extreme.”
Paul Grewal, Coinbase’s chief legal officer, noted that the agency described the cryptocurrency XRP as a security on the first page of its complaint against Ripple. In the complaint, the agency called XRP a “digital asset security.”
Ripple’s chief legal officer, Stuart Alderotti, further criticized the SEC, saying it was time for the agency to “recognize that it’s a twisted skewer of contradictions.”
“So the SEC has finally acknowledged that 1/ ‘crypto security’ is a made-up term, and 2/ to prove that a ‘crypto security’ is an investment contract, the SEC needs evidence of a ‘contract, expectation, and interest’?” Alderoty said.
SEC’s lawsuit against Binance
The SEC’s lawsuit against Binance is for multiple alleged violations of state securities laws. The SEC filed a comprehensive opposition in November 2023, alleging that 10 third-party crypto asset securities were offered and sold on the Binance platform as investment contracts. The SEC argued that these assets met the Howey test, which defines a sale of securities as an investment contract.
In July 2024, the SEC announced that it planned to pursue an amendment to its original complaint against the cryptocurrency exchange, which, if passed, would eliminate the need for the court to decide on the token-related claims at that time.
The SEC’s proposed amendment to its complaint against Binance follows a string of enforcement actions over the past few weeks. On Thursday, the agency settled with financial services firm eToro over allegations that it illegally operated as a broker and clearinghouse in connection with cryptocurrency business. The order used the term “cryptocurrency asset securities.” The agency also recently settled a lawsuit with cryptocurrency-focused investment advisory firm Galois Capital over issues with how it held client assets.
SEC Chairman Gary Gensler has drawn the ire of crypto industry leaders for his approach to regulating digital assets. Gensler has stated that most cryptocurrencies are securities and has required crypto platforms to register with the SEC. Crypto companies have argued that registering with the SEC is impossible and that the current regulatory framework is not suitable for digital assets.
The block has asked the SEC for comment.
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