In a court filing on September 29, crypto venture capital firm Paradigm has flagged concerns over the Securities and Exchange Commission (SEC) of trying to sidestep the standard rulemaking process. Paradigm contended that the SEC is using the unsettling allegations in its complaint as a tool to change existing laws. The firm expressed strong opposition, stating that the SEC is operating beyond its authorized scope.
The SEC initiated a lawsuit against Binance in June, alleging numerous violations of securities laws, including operating without registration as an exchange, broker-dealer, or clearing agency. Paradigm highlighted Binance as just one in a series of cases the SEC has recently pursued against crypto exchanges. Paradigm argued that the SEC’s stance could disrupt established principles of securities law in significant ways.
The Howey Test, derived from a 1946 U.S. Supreme Court case, is a key tool employed by the SEC to determine if transactions qualify as investment contracts subject to securities laws. Paradigm, in its amicus brief, emphasized that various assets, despite being traded for profit, have consistently been deemed not to fall under the category of securities.
The venture capital firm pointed out that commodities like gold, silver, and fine art can accrue value without being classified as securities when sold. Other amicus briefs have also been submitted, including one from Circle, the company behind the stablecoin USDC. Circle questioned the SEC’s assertion that Binance’s stablecoin, BUSD, constitutes an unregistered security, raising broader legal concerns about the impact on digital currency and the U.S. economy.
