Crypto.com filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) after receiving a Wells notice on October 8, 2024.
The Wells notice, issued by the SEC, indicates the agency may take enforcement action related to Crypto.com’s token sales.
The notice is part of the SEC’s broader regulatory crackdown on cryptocurrency firms, with the agency claiming that most cryptocurrency transactions are securities under federal law.
In response, Crypto.com argues that the SEC has overreached its authority and is using enforcement measures rather than creating clear rules through the proper legal channels.
By taking legal action, Crypto.com joins a growing list of crypto companies challenging the SEC’s regulatory approach.
The lawsuit focuses on the SEC’s classification of network tokens as “Crypto Asset Securities” under federal law, which Crypto.com contends is an overreach of the agency’s powers.
Crypto.com Wells Notice Challenges SEC’s Crypto Jurisdiction
Crypto.com argues in its complaint that the SEC is relying on an “unlawful de facto rule” that designates most network tokens, when traded, as securities under the Securities Act and the Exchange Act.
According to Crypto.com, this unauthorized expansion of jurisdiction amounts to the SEC creating new rules without going through the formal rulemaking process required by the Administrative Procedure Act.
The platform is seeking declaratory and injunctive relief to stop the SEC from enforcing these rules. One of Crypto.com’s key complaints is the inconsistent treatment of various cryptocurrencies by the SEC.
For example, while Bitcoin and Ether have largely been excluded from enforcement actions, other tokens with similar characteristics have been subjected to SEC scrutiny without clear justification.
Regulatory Disputes Escalate Following Legal Action by Crypto.com
Crypto.com is also taking additional steps to clarify regulatory uncertainty in the U.S. market.
Its affiliate, Crypto.com Derivatives North America (CDNA), has filed a petition with both the Commodity Futures Trading Commission (CFTC) and the SEC.
The petition seeks joint clarification on whether certain cryptocurrency derivative products fall under the jurisdiction of the CFTC rather than the SEC.
This move is part of Crypto.com’s strategy to navigate the evolving regulatory environment, using legal mechanisms provided by laws like the Dodd-Frank Act to address areas where oversight is unclear.
Crypto.com Confirms Continued Operations Despite Legal Dispute
Despite the ongoing legal challenges, Crypto.com has reassured its customers and stakeholders that its business operations will continue as usual.
The company highlighted its extensive regulatory approvals, including more than 40 state licenses, and its registration with the Financial Crimes Enforcement Network (FinCEN).
In addition, Crypto.com is registered with the CFTC as a designated contract market (DCM) and a derivatives clearing organization (DCO), demonstrating its commitment to compliance with U.S. regulations.
Crypto.com’s legal challenge against the SEC reflects a growing tension between cryptocurrency firms and regulators, with firms seeking clearer rules rather than navigating enforcement actions that appear inconsistent and overreaching.
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