Paradigm, a crypto investment firm, has published an amicus brief concerning the Bittrex lawsuit by the U.S. Securities and Exchange Commission’s (SEC) lawsuit. The firm has rejected the regulator’s “unsupported attempt” in its crypto secondary market’s effort to expand its jurisdiction.
Paradigm says SEC lawsuit should be dismissed
The SEC case against U.S.-based cryptocurrency exchange Bittrex should be “dismissed,” according to the firm’s special counsel Rodrigo Seira, who shared his thoughts in a thread on Twitter on July 11 following Paradigm’s filing of the amicus brief. The SEC based its claims on an unreasonable use of the Howey test, he claims.
In his thread, Seira also brought up a recent statement by SEC Chair Gary Gensler that cryptocurrency exchanges lacked a proper regulatory framework, making it abundantly evident, in his view, that the regulator lacked the power to oversee these secondary markets.
Seira made similar arguments in a blog post published on July 7. At the time, he claimed the SEC lacked authority since crypto-assets do not involve “investment contracts.” As a result, the agency’s purview does not extend to digital assets.
He claimed the digital asset industry is in limbo, urged to “come in and register” but having no practical way to do so unless the SEC does the rulemaking Coinbase requested.
The SEC lacks a proper regulatory framework
In May, Paradigm submitted a comparable amicus brief in support of Coinbase. The brief criticized Gary Gensler, the chairman of the SEC, using his earlier confession that the organization lacked the authority to supervise the same secondary markets.
According to Paradigm, the legal framework surrounding the issue has not changed since Gensler made those remarks in 2021. However, due to subsequent events, the SEC has since held onto having the same jurisdiction that Gensler recognized was lacking. As a result, the SEC is already pursuing the imposition of retroactive fines on crypto businesses that have disregarded this newly acquired authority.
Additionally, the investment company claims that even if a project initially sold a cryptocurrency asset in a fundraising event like an ICO, the SEC lacks the legal justification to claim that the asset constitutes an investment contract or that secondary market transactions in that asset are transactions under an investment contract.
The firm claims that the Howey test does not apply to transactions between third parties in a secondary market since only a small number of courts have been able to distinguish between token offerings and the tokens involved.
Bittrex SEC case
Until March of this year, Seattle-based Bittrex offered services to American users. Then, it announced that it was ending operations because of the “current U.S. regulatory and economic environment.” It later declared bankruptcy in May.
The SEC then brought a lawsuit against the cryptocurrency exchange and accused it of breaking securities laws. Bill Shihara, Bittrex’s co-founder and previous CEO, and Bittrex Global, an organization located in Liechtenstein and Bermuda that is separate from Bittrex U.S. both legally and operationally, was also named in the case.
