Crypto investment firm Paradigm has submitted an amicus brief in the ongoing US SEC vs crypto exchange Bittrex case, asserting that the regulator is “wrongfully attempting” to oversee crypto secondary markets.
The US Securities and Exchange Commission (SEC) case against Bittrex should be “dismissed,” Paradigm’s special counsel Rodrigo Seira, wrote in a blog.
“The court should dismiss this case and the SEC should join Congress in working on crypto legislation that supports innovation and protects investors.”
According to Seira the SEC’s claims against Bittrex and other crypto exchanges fundamentally differ “from its many prior cases against token sellers.”
The SEC’s recent practices represented an unreasonable use of the Howey test – a legal test used in the US to determine whether a transaction qualifies as an investment contract.
Seira wrote that the regulator has no legal grounds to argue that a crypto asset itself is an investment contract, or that secondary market transactions in that asset are investment contract transactions.
“The SEC lacks the authority to regulate secondary markets for crypto assets because they do not involve ‘investment contracts’ and are therefore not securities transactions under the agency’s remit.”
Paradigm has previously backed an exchange facing legal action from the regulator. In May, the firm filed a similar amicus brief in support of Coinbase, claiming that SEC lacks clear guidance for crypto firms.
Does SEC’s Legal Battle Help Define the Future of Cryptocurrencies?
The US regulator charged Bittrex in April for operating an unregistered national securities exchange, broker, and clearing agency. Shortly after, the exchange filed for Chapter 11 bankruptcy in a federal court in Delaware.
The SEC’s case against Bittrex marked the first of three lawsuits against cryptocurrency exchanges in recent weeks, including Binance and Coinbase.
As a result of the series of lawsuits against US-based crypto exchanges, prices of the tokens listed in the filings plummeted. However, legal experts warned that the ultimate impact remains uncertain.
“I’m not sure the lawsuits are a surprise to anyone following the SEC’s current playbook,” Sean Farrell, head of digital asset research at data firm FundStrat, told CoinDesk.
“They want to stifle the onramps with costly legal burdens such that everyone moves overseas.”
Timothy Massad, former chairman of the CFTC noted earlier that these lawsuits would “affect people’s attitude towards trading.”
“I think these cases will be fundamental to the shape of crypto regulation,” Massad added.
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