Crypto investment firm Paradigm has filed an amicus brief in the SEC’s case against exchange Bittrex, claiming the regulator is overstepping its jurisdiction.
The case should be dismissed because the SEC has “wrongfully” attempted to oversee crypto secondary markets, Paradigm said in the filing, adding that the practice represented an undue extension of the Howey test.
“The SEC lacks the authority to regulate secondary markets for crypto assets because they do not involve ‘investment contracts’ and are therefore not securities transactions under the agency’s remit,” Paradigm wrote in a blog post Monday.
The SEC charged Bittrex in April for allegedly operating an unregistered securities exchange, broker and clearing agency. Bittrex filed for bankruptcy about two weeks later.
The case marked the first of three the SEC has brought against crypto exchanges in recent weeks. Coinbase and Binance are also facing charges from the regulator.
“The SEC’s claims against Bittrex and the other crypto exchanges are fundamentally different from its many prior cases against token sellers,” Paradigm’s special counsel Rodrigo Seira said in a Monday tweet. “In those prior cases, the SEC exercised its authority to regulate fundraising schemes under the Howey test.”
The filing marks the second time Paradigm has backed an exchange facing legal action from the SEC. In May, shortly after the securities regulator sued Coinbase, Paradigm filed an amicus brief claiming the agency had issued insufficient guidance for crypto firms.
“Until the SEC engages in the rulemaking Coinbase has requested, the digital-assets industry is stuck in limbo, simultaneously told to “come in and register” yet having no effective means of doing so,” Paradigm wrote in a May blog on its Coinbase amicus brief. “That is not how administrative law is supposed to work.”
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