Venture capital firm Paradigm has issued a scathing rebuke of the United States Securities and Exchange Commission (SEC) for its handling of the legal action against cryptocurrency exchange Binance. In a statement released on Friday, September 29, Paradigm accused the SEC of sidestepping standard rulemaking procedures and attempting to reshape securities law without due process.
The SEC initiated legal proceedings against Binance in June, alleging multiple securities law violations, including operating without the required registrations as an exchange, broker-dealer, or clearing agency. Paradigm emphasized that the SEC has been aggressively pursuing similar cases against various cryptocurrency exchanges, expressing concern that the regulatory body’s actions could fundamentally alter the landscape of securities law.
A focal point of Paradigm’s criticism centered on the SEC’s application of the Howey test. Originating from a 1946 U.S. Supreme Court case involving citrus groves, the Howey test is used by the SEC to determine whether transactions meet the criteria for investment contracts and fall under securities regulations.
In its amicus brief, Paradigm contended that many assets are actively marketed, purchased, and traded based on their profit potential, yet the SEC has consistently exempted them from classification as securities. The brief cited examples such as gold, silver, and fine art, asserting that the mere potential for value appreciation should not automatically classify their sale as a security transaction.
The ongoing legal dispute between Binance and the SEC has also drawn USD Coin (USDC) issuer Circle into the fray. Circle, now a participant in the case, vehemently opposes the SEC’s classification of stablecoins as securities.
Circle’s argument hinges on the belief that stablecoins should not be labeled as securities because individuals acquire them not for profit but for other purposes. This stance further complicates the SEC’s efforts to regulate the burgeoning cryptocurrency market.
Paradigm’s criticism underscores the growing tension between regulatory bodies and the cryptocurrency industry. As the legal battle between the SEC and Binance continues, it remains to be seen how these disputes will impact the broader landscape of cryptocurrency regulations and securities law in the United States.
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