The SEC quietly changes the law, apparently for the worse.
The SEC has always turned a deaf ear to allegations of power abuse by the crypto community. Lately, Paradigm has come to the fore. In fact, the venture capital firm blames the actions of the digital asset regulator. The latter would have exceeded the limits in the case that confronts it with the cryptographic giant Binance.
Binance, Guinea Pig of a Machiavellian SEC?
Binance and CZ have already cited abuse of discretion in a joint motion asking the court to dismiss the SEC’s lawsuits. Instead of clearing things up from the beginning, this cryptocurrency market regulatory institution decided to arbitrarily attack several cryptocurrency exchanges (including Binance).
On September 30, Cointelegraph posted on X that “Paradigm calls out the SEC, claiming they’re using allegations not just to accuse, but to change the law—bypassing the regular rulemaking.”
Thus, the list of anti-SEC continues to grow. According to Cointelegraph, Paradigm uncovered the US Securities and Exchange Commission’s shenanigans in the Binance matter. The venture capital firm did not hesitate to mention this in its amicus curiae brief in the Binance vs. SEC case.
“In this case, the SEC is attempting to take advantage of the disturbing allegations it makes in its complaint to change the law while circumventing the rulemaking process. The SEC is clearly acting outside the scope of its authority and we oppose this maneuver,” the communication reads.
In the introduction, Paradigm clarified that it has no stake in Binance and does not expect to make profits through this approach. “However, we believe that it is essential to oppose government overreach, regardless of who is defending it,” according to Rodrigo Seira.
Paradigm said the SEC’s attack on at least three cryptocurrency exchanges shows how much it wants to control secondary crypto markets.
However, in his latest testimony before Congress, Gary Gensler admitted that his agency does not have the power to regulate those same markets: “The exchanges that trade these cryptoassets do not have a regulatory framework.”
Binance Matter and Securities Regulation
In its pro-Binance (BNB) amicus brief, Paradigm pointed out the SEC’s theory affecting the foundations of securities law.
First, the SEC would force the Court to admit that an “investment contract” does not need a contract. However, the law requires contractual commitments for any investment contract.
“Selling a crypto asset, especially in secondary markets, promises nothing more than delivery of the crypto asset. The SEC cannot demand a formal contract where none exists thanks to a legal trick,” explains Paradigm.
Second, the SEC’s logic aims to classify all sales of any asset as securities. This will make it easier for them to apply their own laws to these assets.
However, “courts have long held that the mere fact that an asset may increase in value due to market forces does not mean that there is a ‘reasonable expectation of profits’ that would convert the sale of the asset into an investment contract.”
Finally, Paradigm describes as unreasonable the interpretation of the SEC, Binance’s executioner, of the “investment contract”.
“The regulation of cryptoassets is of such economic and political importance that the SEC needs clear authorization from Congress to participate in said regulation. A 77-year-old interpretation (Howey) of a 90-year-old law (the Securities Act) hardly provides this clarity,” reads the last lines of this report in support of Binance.
By Audy Castaneda
