Crypto.com Sues the SEC to Protect Crypto’s Future in the U.S.

About the Lawsuit

On October 8, 2024, Crypto.com sued the U.S. Securities and Exchange Commission (SEC) to protect crypto’s future in the U.S. accusing it of overstepping its authority over cryptocurrency, marking a significant moment in the ongoing tension between cryptocurrency companies and regulatory authorities.

The lawsuit stems from a Wells Notice that Crypto.com received earlier, which is a formal warning indicating that the SEC is considering enforcement action. The notice claims that Crypto.com may have violated U.S. securities laws by engaging in certain transactions that the SEC classifies as securities sales.

The Primary Allegations

“Our lawsuit contends that the SEC has unilaterally expanded its jurisdiction beyond statutory limits and separately that the SEC has established an unlawful rule that trades in nearly all crypto assets are securities transactions,” Crypto.com said.

Crypto.com’s lawsuit accuses the SEC of overstepping its legal boundaries by applying securities regulations to a wide array of cryptocurrency transactions. Specifically, the company argues that the SEC has unilaterally expanded its jurisdiction to include most digital assets, except for Bitcoin and Ethereum, which the SEC does not consider securities. The lawsuit challenges the SEC’s regulatory approach, accusing the agency of enforcing rules without the proper legislative or procedural process, particularly bypassing the notice-and-comment requirements of the Administrative Procedure Act (APA).  And the commissioner of the SEC is admitting its crypto approach has been wrong. Mark Uyeda, commissioner of the SEC, admitted “I think our policies and our approach over the last several years have been just really a disaster for the whole industry. We have been sending this ‘policy through enforcement,’ we’ve done nothing to provide guidance on it,” he continued. “And as a result, this has been achieved by the courts. And different courts have ruled different ways.”

Crypto.com Petitions the CFTC

In addition to contesting the SEC’s overreach, Crypto.com has also filed a petition with the Commodity Futures Trading Commission (CFTC) seeking clarification on the regulatory status of certain cryptocurrency derivatives. The company argues that these products should be regulated by the CFTC and not the SEC, which would reduce the regulatory conflict currently plaguing the industry.

The lawsuit mirrors other recent legal actions taken by crypto companies like Ripple, which also pushed back against the SEC’s aggressive stance on crypto regulation. Crypto.com is seeking both declaratory and injunctive relief to prevent the SEC from expanding its authority in what it views as an unlawful manner. The lawsuit represents a broader industry push against what many in the cryptocurrency space view as harmful regulation by enforcement—a tactic that focuses on enforcement actions without first establishing clear rules for the industry.

Conclusion

Crypto.com’s decision to file this lawsuit follows a trend of increased legal scrutiny on the SEC’s approach to regulating cryptocurrencies. The company hopes that the U.S. courts will act as a check on what it describes as the SEC’s arbitrary actions, a sentiment echoed by other stakeholders in the crypto world who have criticized the regulator’s approach to stifling innovation and harming investors.

As the case progresses, it will have significant implications for the future of cryptocurrency regulation in the U.S., particularly concerning how digital assets are classified and governed. Crypto.com has expressed confidence in its position and vowed to continue operations as usual despite the ongoing legal battle.