Cryptocurrency exchange Crypto.com has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC), its Chair Gary Gensler, and the four SEC commissioners after receiving a Wells Notice—an official warning that the SEC may take enforcement action against the company.
CEO Kris Marszalek stated on X (formerly Twitter) that the lawsuit was necessary “to protect the future of crypto in the U.S.” He emphasized that the suit was a response to the SEC’s enforcement actions, which have negatively impacted more than 50 million U.S. cryptocurrency holders.
What is a Wells Notice?
The Wells Notice, sent to Crypto.com on August 22, 2023, serves as a formal warning that charges may be filed by the SEC. This type of notice is typically a precursor to enforcement actions.
Crypto Industry’s Fight Against SEC Regulation
Crypto.com isn’t alone in challenging the SEC’s enforcement tactics. Other major players like Binance, Ripple, and Coinbase have also been targeted. In August 2023, OpenSea received a similar Wells Notice, suggesting that certain NFTs (non-fungible tokens) on its platform were considered securities by the SEC. OpenSea’s CEO, Devin Finzer, expressed surprise but pledged to fight the charges.
In April 2023, Uniswap, a decentralized crypto exchange, also received a Wells Notice, which it requested the SEC to retract.
Details of the Crypto.com Lawsuit
Crypto.com’s lawsuit, filed by Foris DAX Inc. (operating under the name Crypto.com), seeks declaratory and injunctive relief to prevent the SEC from unlawfully expanding its jurisdiction. The suit argues that the SEC is attempting to regulate secondary-market sales of certain network tokens sold on the platform, a move the company believes oversteps the SEC’s authority.
The SEC has classified all network tokens, except for Bitcoin (BTC) and Ethereum (ETH), as securities, leading to the Wells Notice against Crypto.com. The SEC alleges that the exchange has been operating as an unregistered broker-dealer and securities clearing agency under federal securities laws.
Crypto.com’s Petition to the CFTC
In a related filing, Crypto.com also submitted a petition to both the SEC and the Commodity Futures Trading Commission (CFTC), seeking clarification on whether certain cryptocurrency derivative products fall solely under the jurisdiction of the CFTC.
Ongoing SEC Investigation
Crypto.com’s filing disclosed that the SEC had been investigating the company for over two years, with a formal investigation beginning on March 28, 2023. The SEC has not commented on the matter, and the agency did not immediately respond to requests from Bloomberg and CoinDesk.
Today, https://t.co/pFc4Pz9nFR filed suit against the SEC to protect the future of crypto in the U.S.: https://t.co/kXxyhF7zFe
— Kris | Crypto.com (@kris) October 8, 2024