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Venture capital firm Paradigm has expressed its disapproval of the United States Securities and Exchange Commission (SEC) for circumventing standard rulemaking protocols in its ongoing legal proceedings against the cryptocurrency exchange Binance.
In a statement issued on Friday, Sept. 29, Paradigm indicated that the SEC is attempting to leverage the claims in its lawsuit to modify the law without following the established rulemaking framework. Paradigm is convinced that the SEC is overstepping its regulatory authority and reiterated its strong opposition to this approach.
In June, the SEC commenced legal action against Binance, alleging multiple breaches of securities regulations, including operating without the requisite registration as an exchange, broker-dealer, or clearing agency. Paradigm also emphasized that the SEC has been pursuing similar actions against various cryptocurrency exchanges recently and expressed concern that the SEC’s position “could fundamentally reshape our understanding of securities law in several critical aspects.”
Screenshot of Paradigm’s amicus brief Source: Paradigm
Moreover, Paradigm raised issues regarding the limitations of the SEC’s application of the Howey test. The SEC frequently utilizes the Howey test — which originated from a 1946 U.S. Supreme Court case involving citrus groves — to assess whether transactions qualify as investment contracts and fall under securities regulations.
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In its amicus brief, Paradigm contended that numerous assets are actively marketed, acquired, and traded based on their potential for profit. However, the SEC has consistently excluded them from being classified as securities. The brief further highlighted examples such as gold, silver, and fine art, emphasizing that merely possessing the potential for value appreciation does not automatically categorize their sale as a security transaction.
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USD Coin (USDC) issuer Circle has recently entered the ongoing legal conflict between Binance and the SEC. Circle maintains that the SEC should not classify stablecoins as securities.
Circle argues that these assets should not be deemed securities since individuals purchasing stablecoins do not do so with the intention of generating profits.
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