According to the recent U.S. Securities and Exchange Commission (SEC) complaint against Bittrex, the securities regulator insists that a few crypto asset tokens have been offered and sold as investment contracts and are securities. The news follows the SEC’s designation of several crypto assets as securities, including the case against Terraform Labs, which insists that LUNA and UST were sold as unregistered securities. Additionally, a lawsuit filed by New York Attorney General Letitia James against Kucoin insists that ethereum is also an unregistered security.
Lawsuits against crypto exchanges bring to the fore lack of clarity on security over status of goods
This year, US regulators are designating a number of crypto assets as unregistered securities, and the allegations are buried in lawsuits against several crypto exchanges. Bittrex is the latest crypto exchange to be sued this year, following lawsuits against trading platforms such as Binance US, Kucoin and Coinex, after the SEC accused Bittrex of operating “a national securities exchange, an unregistered broker and clearing agency”. In the lawsuit against Bittrexthe SEC insists that DASHALGO, TKN, NGC and OMG are unregistered titles.
For example, on pages 35, the SEC pointed out that “OMG investors had a reasonable expectation of profit based on the efforts of others” while discussing the Omisego project. The securities regulator says that “documents available at the time of (the initial coin offering (ICO)) indicated that the development of the platform by the OMG Network team could generate benefits for OMG token holders”. On page 37, the SEC discusses DASHand the regulator stresses that “purchasers of DASH invested in a joint venture.
Gary Gensler has been promoting Algorand for years
Now that the SEC has ruled Algorand is a security, will it be hit with the same $1.26 million fine it slapped on Kim Kardashian?pic.twitter.com/ucuOOVxqPS
— LilMoonLambo (@LilMoonLambo) April 17, 2023
The SEC explains how the Dash project has a treasury, Dash Control Group, and describes the Masternodes process. Another crypto asset designated as an unregistered security is ALGO, as the regulator says it was also sold as an investment contract. This particular crypto asset is discussed on social media because SEC Chairman Gary Gensler previously called Algorand a “great tech” and “something you can build Uber on”, and it talked about Italian computer scientist Silvio Micali, founder of Algorand. However, despite past comments by the SEC Chairman, the SEC Complaint insists that:
ALGO investors had a reasonable expectation of profit based on the efforts of others.
The regulator’s lawsuit, filed in the U.S. District Court for the Western District of Washington, provides details of when the crypto assets were made available on Bittrex’s platform. The SEC explains that DASH was made available on Bittrex in 2014 but was temporarily removed on December 29, 2020, to be re-listed on September 1, 2021. “From the time of its offering and throughout the relevant period, DASH was offered and sold as an investment contract and, therefore, as a security,” the SEC complaint adds.
Regulators disagree on classification of Ethereum and other cryptocurrencies
The Securities and Exchange Commission has not provided an official list of crypto assets that have been deemed securities. Mentions of such designations continue to occur in court cases, such as the July 2022 one. insider trading case involving a Coinbase employee. The lawsuit referenced crypto assets such as dfx finance (DFX), LCX (LCX), powerledger (POWR) and six other digital currencies listed on the crypto trading platform. Luna (LUNA) and terrausd (UST) have been identified as unregistered securities in the SEC case against Do Kwon. Additionally, the lawsuits against Kucoin and Coinex initiated by New York Attorney General Letitia James make specific designation claims.
In the Coinex lawsuit, James and the Office of the Attorney General (OAG) claim the trading platform failed to register as a securities and commodities broker and sold “securities and commodities” . Securities and commodities mentioned in the OAG case include AMP, LUNA, LBC and RLY. In the case against Kucoin, James and the OAG said the second-largest crypto asset, ethereum (ETH), is an unregistered title.
In the lawsuit against Binance launched by the US Commodity Futures Trading Commission (CFTC), the commodity regulator declares that bitcoin, ethereum, binance usd, tether and litecoin are commodities. The discrepancies between the MPC and CFTC lawsuits highlight the lack of regulatory clarity in the system where two regulators have still not decided what is a security and what is a commodity in terms of the thousands of crypto assets that exist today.
What do you think the future holds for cryptocurrency regulation? Do you think more clarity and consistency will emerge, or will the regulatory landscape remain fragmented and uncertain? Share your thoughts in the comments section below.
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