Crypto.com sues SEC, claims regulator is overstepping legal boundaries

Crypto.com has filed a lawsuit against the US Securities and Exchange Commission (SEC) following the receipt of a Wells notice, marking its entry into the ongoing legal battles within the crypto industry.

On Oct. 8, Kris Marszalek, CEO and co-founder of Crypto.com, announced the legal action. 

The exchange filed suit against the SEC, accusing the regulator of overstepping its authority with what Marszalek described as a “regulation by enforcement” approach.

He argued that this strategy has adversely affected more than 50 million crypto holders in the US.

A Wells notice is a formal warning from the SEC that enforcement action may be taken for potential violations of securities laws.

While it signals that the regulator is considering charges, it also provides an opportunity for the recipient to respond before any legal action proceeds.

The core of Crypto.com’s lawsuit centers on claims that the SEC has unlawfully overstepped its jurisdiction, asserting that the regulator has unilaterally imposed a rule treating nearly all crypto transactions as securities.

The company argues that these regulatory actions exceed the statutory limits established by law.

In its announcement, Crypto.com described the lawsuit as an unprecedented move aimed at defending the crypto industry, while also labeling the SEC’s actions as unlawful.

Marszalek echoed this sentiment, emphasizing that the company would use “all regulatory tools available” to bring clarity to the sector through proper rulemaking.

The company has also filed a petition with the Commodity Futures Trading Commission and the SEC to clarify the categorization of crypto derivative products.

Crypto.com criticized the SEC’s enforcement campaign, calling it “unjust” and “unauthorized.”

The exchange stressed that the SEC’s actions continue despite bipartisan indications that the next US administration may take a more favorable stance toward cryptocurrencies. 

The company contends that these enforcement actions have become part of operating a legitimate crypto business in the US, although they believe the SEC has left them “no other choice” but to take legal action.

Regulation by enforcement

This lawsuit makes Crypto.com the latest crypto entity to challenge the SEC alongside other major players like Coinbase and blockchain payments firm Ripple. 

In recent months, the SEC has targeted several major players in the crypto industry, issuing enforcement actions against entities such as non-fungible token marketplace OpenSea.

The SEC sent OpenSea a Wells notice in August, marking the first time the regulator targeted an NFT platform, which was met with criticism from many pro-crypto voices.

Industry participants have voiced concerns that SEC Chair Gary Gensler’s enforcement approach is stifling innovation in the crypto sector. 

Earlier this year, The Digital Chamber, a digital asset trade association, condemned the SEC’s actions after it issued a Wells notice to Robinhood Crypto.

The Chamber described the notice as an example of regulatory overreach and called for legislative intervention.

During a congressional hearing in September, Gensler faced criticism from lawmakers for his approach to crypto oversight.

While he defended the SEC’s actions, stating that rules already exist, Robinhood’s chief attorney, Dan Gallagher, argued that the regulator had been unresponsive to the company’s efforts to comply with registration requirements.

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