The SEC has long been known to target cryptocurrency companies involved in “ Cryptoasset securities.” However, the agency now asserts that it never intended to imply that any Token were actually securities, despite using the term “securities.”
In a note accompanying the amended complaint against Binance, the SEC said that when it refers to Cryptoasset securities, it is not referring to the Cryptoasset themselves, but rather to the entire set of contracts, expectations, and agreements related to the sale of these assets. In fact, the SEC uses the term as a shorthand.
The agency also stated that it has always maintained this position, citing an additional paragraph in the Telegram lawsuit. However, to avoid confusion, the SEC said it would avoid using this abbreviation in the Binance lawsuit and “regrets any confusion.”
These statements from the SEC shocked many crypto experts. Jake Chervinsky, Chief Legal Officer at Variant Fund, wrote on social media X: “I had no idea there was this level of psychological manipulation.” Paul Grewal, Chief Legal Officer at Coinbase, also pointed out that the SEC called XRP a security on the first page of its complaint against Ripple.
Stuart Alderoty, Ripple’s Chief Legal Officer, criticized the SEC, saying: “It’s time for the SEC to admit they’re being a bunch of contradictions.” He said the SEC has admitted that the term “ Cryptoasset security” is a made-up term and that to prove an asset is a security, the SEC needs evidence of a bundle of “contracts, expectations, and agreements.”
The SEC sued Binance for alleged violations of multiple U.S. securities regulations. In a comprehensive objection filed in November 2023, the SEC alleged that 10 third-party Cryptoasset securities were offered and sold as investment contracts on Binance’s platforms. The SEC asserted that these assets met the Howey test, which defines securities transactions as investment contracts.
In July 2024, the SEC said it planned to amend its original complaint against Binance so that it would not require a court to decide on the allegations related to Token at that time.
The SEC’s proposed amendment to its complaint against Binance follows a series of enforcement actions in recent weeks. On Thursday, the agency settled with financial services company eToro over allegations that it acted illegally as a broker-dealer in connection with its cryptocurrency operations. The agency also fined and settled with investment advisory firm Galois Capital over issues related to its handling of customer assets.
SEC Chairman Gary Gensler has faced resistance from industry leaders over his approach to regulating digital assets. Gensler has argued that most cryptocurrencies are securities and has called on cryptocurrency platforms to register with the SEC. Cryptocurrency companies, however, have argued that registering with the SEC is not possible and that the current regulatory framework is not appropriate for digital assets.
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