Paradigm sues SEC for overstepping rules in Binance case
Venture capital firm Paradigm has criticized the United States Securities and Exchange Commission (SEC) for bypassing standard rulemaking in its legal action against cryptocurrency exchange Binance.
In a statement released on Friday, September 29, the SEC is using the allegations in the complaint to try to change the law without following the established legal process. Paradigm has stated that it strongly believes that the SEC is overstepping its regulatory bounds and strongly opposes this approach.
In June, the SEC launched legal action against Binance, accusing it of multiple violations of securities laws, such as failing to register as an exchange, broker-dealer or clearing agency. Paradigm noted that the SEC has recently been pursuing similar issues with various cryptocurrency exchanges, and expressed concern that the SEC's position “could fundamentally change our understanding of securities law on several critical issues.”
In addition, Paradigm highlighted concerns about deficiencies in the SEC's implementation of the Hawaii test. The SEC often relies on the Howey test — a 1946 U.S. Supreme Court decision in the Citrus Groves case — to determine whether transactions meet the criteria of investment contracts and fall under securities regulations.
In its amicus brief, Paradigm argued that many assets are actively sold, bought and traded based on their profit potential. However, the SEC has consistently exempted them from being classified as securities. The brief pointed to issues such as gold, silver and fine art, underlining that the mere fact that they have the potential to appreciate in value does not qualify their sale as a security transaction.
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The USD Coin (USDC) issuing community has recently been embroiled in an ongoing legal dispute between Binance and the SEC. Circle believes the SEC should not classify stablecoins as securities.
Circle argues that these assets should not be classified as securities because individuals who acquire stablecoins do not do so to make a profit.
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