Paul Grewal, the chief legal officer of crypto exchange Coinbase, said the U.S. Securities and Exchange Commission (SEC) has not successfully disputed the Howey test requirement that securities offering must include an investment contract in its response to Binance's motion to dismiss the SEC's lawsuit against it. Binance, the largest crypto exchange in the world, filed a motion to dismiss the lawsuit in Sept. and has since been supported by amicus briefs from multiple third parties.
"Once more, the SEC asserts that a virtually unlimited 'flexibility of the securities laws' grants it complete authority over crypto exchanges. That misrepresents the law; let’s explore why. An absolute requirement of an investment contract as defined by the Supreme Court in Howey is a contractual right to the profits, income, or assets of a business enterprise. The SEC tries, but fails, to dispute that," Grewal said.
Grewal said that there is need for Congress to legislate comprehensive regulations for the crypto industry and for courts to provide clarity on matters related to crypto regulation due to SEC's opposition to Binance's motion to dismiss.
Binance's motion to dismiss the SEC's lawsuit said that as recently as 2021, Gary Gensler, the chair of the SEC, had publicly acknowledged that no "regulatory framework" existed that would give the SEC authority over crypto exchanges and that "only Congress" could give the SEC that authority, according to a copy of the motion.
The same document also says that when claiming cryptocurrencies are securities, the SEC "distorts" existing laws by overlooking “contract” portion of “investment contract." It suggests that agency is retroactively asserting its influence over transactions dating back 2017, including ones that happened outside US borders, despite Supreme Court confirming that the SEC's jurisdiction does not extend outside of the country.
Paradigm, a research-driven tech investment firm, filed an amicus brief supporting Binance's motion against the lawsuit filed by SEC in September, as per their filing. They maintain they have not invested in Binance and aren't financially involved with the case, but they believe the SEC has overstepped its boundaries. They submitted their brief to prevent "regulatory overreach" from negatively affecting innovation in crypto industry and to ensure the SEC isn't meddling with legislative attempts to regulate the sector.
Investor Choice Advocates Network (ICAN) expressed its support for Binance by filing an amicus brief in Sept. ICAN filed this brief fearing that SEC's "ambiguous and expansive" application of existing securities laws might adversely affect investors and individuals wishing to engage in digital asset industry.