The U.S. Securities and Exchange Commission (SEC), under Chair Gary Gensler, has continued to increase its scrutiny of the cryptocurrency sector, issuing a Wells notice to Crypto.com, indicating the possibility of legal action against the firm.
In response, Crypto.com has filed a lawsuit against the SEC. The company published a statement and contended that the agency had exceeded its authority by creating de facto rules for digital assets without following proper legal procedures.
In an interview, Daniel Stabile and Kimberly Prior, co-chairs of Winston & Strawn LLP’s Digital Assets and Blockchain Technology Group, emphasized that this lawsuit could potentially reshape the regulatory landscape for crypto, as it directly challenges the SEC’s interpretation of its authority over digital assets.
Crypto.com’s Dual Legal Strategy Seeks Regulatory Clarity
According to Crypto.com’s statement, the lawsuit highlighted a key conflict over regulating digital assets. Crypto.com claimed the SEC has overstepped by treating various digital assets as securities without following the proper legal processes required under U.S. law.
The company argued that the SEC bypassed the notice and comment rulemaking process, as the Administrative Procedure Act required. This lawsuit challenged what Crypto.com views as improperly expanding the SEC’s authority.
“Crypto.com is alleging that the SEC has de facto created a rule already that essentially many types of digital assets are securities under U.S. law, and they did that without engaging in the traditional notice and comment rulemaking process, which is required under U.S. administrative law,” said Daniel Stabile.
In addition to the lawsuit, Crypto.com has filed a joint petition under the Dodd-Frank Act with both the SEC and the Commodity Futures Trading Commission (CFTC). The petition asked for collaboration between the two regulatory bodies to establish clearer guidelines on digital assets.
The lack of coordination between the SEC and CFTC has been a long-standing issue, with both agencies asserting authority over digital assets. Crypto.com’s petition aims to resolve this regulatory overlap.
“What’s unique about this case is that it’s not just a legal challenge to the SEC, but it’s also an effort to get the SEC and CFTC to work together,” said Kimberly Prior. “Crypto.com is essentially trying to force the two agencies to interact and come to some agreement.”
Stabile noted that while other firms have filed lawsuits against the SEC, this case stands out due to its dual approach, combining a legal challenge with a push for regulatory collaboration.
Therefore, the case’s outcome could set an important precedent, potentially influencing how digital assets are classified and regulated in the U.S.
2024 Election Could Shift SEC’s Approach to Crypto Regulation
The upcoming 2024 U.S. presidential election is seen as a potential turning point for crypto regulation. A probable change in administration could significantly impact the SEC’s approach to enforcement within the crypto sector.
“There’s a very good chance that depending or regardless of which direction the election goes, the SEC chairman could change, and the enforcement posture and the direction the SEC takes with respect to digital assets may also change in some way,” said Prior.
She explained that the election’s outcome might determine whether the SEC softens its approach to crypto regulation.
Stabile echoed these sentiments, adding that the U.S. Congress may play a critical role in shaping the future of digital asset regulation.
“Congress may be the most important piece of this entire puzzle… the industry is seeking clarity because that’s what will unleash so much potential energy in the space in the United States,” said Stabile.
Treasury’s role in crypto regulation was also discussed, particularly if Gary Gensler were to take up a leadership position within the department. While the Treasury’s primary focus would be tax and financial crime compliance, both attorneys agreed that it would have less direct impact on securities laws.
“If he were to take the position of Secretary of Treasury, he certainly would be somewhat involved in the industry and could continue to take an active role, but I don’t think it would be with respect to the securities law aspects,” Kimberly Prior explained.
Stabile and Prior also touched on the complexities of defining digital assets as securities, which remains a central challenge for the industry. Stabile noted that determining whether a digital asset is a security cannot be simplified into a one-size-fits-all rule.
“It’s much more complicated because there are a nearly infinite variety of digital assets, and some types of digital assets are securities. Many are not,” he said.
Prior added that regulators must develop a more nuanced approach to crypto classification, emphasizing that clarity is essential to avoid blanket assumptions.
“You have to look at how each product is structured. For example, tokenized real-world assets may or may not be securities, depending on how they are presented,” added Prior.
This ongoing difficulty in defining digital assets and ensuring consistent regulatory treatment is a key issue that both attorneys believe requires attention from lawmakers and regulators alike.
Daniel Stabile specializes in handling litigation and regulatory challenges within the crypto industry, while Kimberly Prior focuses on advising clients on U.S. securities and banking laws related to digital assets. Both have contributed to legal education, teaching digital asset regulation at the University of Miami Law School.
The post Crypto.com Sues SEC: Can This Lawsuit Redefine Digital Asset Regulation? appeared first on Cryptonews.
