Rodrigo Seira, special counsel for Paradigm, a crypto investment firm, has accused the U.S. Securities Exchange Commission (SEC) of overreaching its jurisdiction by attempting to regulate secondary crypto markets. Seira expressed his views in a series of tweets on July 11, 2023, in relation to Paradigm’s amicus brief filing on July 7, 2023, which seeks the dismissal of the SEC’s case against Bittrex.
Seira argued that the SEC unfairly targeted Bittrex as part of its broader efforts to regulate secondary markets for cryptocurrencies. He stressed that the regulator’s allegations against Bittrex and other crypto exchanges differ significantly from its previous cases involving token sellers.
He noted that the securities regulator had previously focused on overseeing fundraising schemes under the Howey test. According to Seira, even its claims in these cases relied on an unreasonable application of the test.
Seira stated:
“The SEC’s lawsuit against Bittrex is the first of three cases that the SEC has brought in rapid succession against crypto exchanges. Through these actions, the SEC is wrongfully attempting to lay claim over crypto secondary markets.”
Seira also noted that Paradigm’s brief asserts that the SEC lacks jurisdiction to regulate secondary markets for cryptocurrencies because these assets do not meet the criteria of “investment contracts” and fall outside the scope of the agency’s authority over securities transactions.
Seira claimed that U.S. SEC Chair Gary Gensler had previously acknowledged the insufficient regulatory framework surrounding crypto exchanges and expressed his belief that the regulator lacked the necessary authority to oversee these secondary markets.
According to Seira, “the law has not changed” since Gensler made those remarks in 2021.
Seira pointed out that the U.S. SEC now claims that it has found the previously authority which Gensler stated was absent, and is attempting to impose retroactive penalties on companies for non-compliance.
The U.S. SEC initiated legal action against Bittrex and its former CEO, William Shihara, on April 17, 2023, claiming that they operated an unregistered national securities exchange, broker, and clearing agency. In the weeks following the lawsuit, Bittrex relinquished its money transmitter license in Florida and filed for bankruptcy.
This development is the second time Paradigm has supported a crypto firm facing legal action by the U.S. SEC. In May 2023, Paradigm filed an amicus brief in support of Coinbase. The firm argued that the securities regulator had not provided sufficient rules or guidance for digital asset firms in the United States.
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