Paradigm, a prominent venture capital firm, has voiced strong criticism against the United States Securities and Exchange Commission (SEC) for what it perceives as a deviation from standard rulemaking procedures in its current legal action against the cryptocurrency exchange giant, Binance.
In a statement released on September 29th, Paradigm accused the SEC of attempting to reshape the legal landscape by leveraging the allegations in its complaint against Binance to effect changes in the law without adhering to established rulemaking processes.
Paradigm firmly contends that the SEC is overstepping its regulatory boundaries and vehemently opposes this unconventional approach.
The SEC initiated legal proceedings against Binance in June, alleging multiple violations of securities laws, including operating without the required registration as an exchange, broker-dealer, or clearing agency.
Paradigm emphasized that the SEC has been pursuing similar cases against various cryptocurrency exchanges lately, raising concerns that the SEC’s stance “could fundamentally reshape our comprehension of securities law in several critical aspects.”
Furthermore, Paradigm expressed reservations about the SEC’s application of the Howey test, a legal standard used to determine whether transactions qualify as investment contracts subject to securities regulations.
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Paradigm’s amicus brief argued that many assets are actively marketed, purchased, and traded based on their profit potential. Despite this, the SEC has consistently exempted them from being classified as securities.
Paradigm cited examples such as gold, silver, and fine art, underscoring that the mere potential for value appreciation does not inherently classify their sale as a security transaction.
In a related development, Circle, the issuer of USD Coin (USDC), has entered the fray of the ongoing legal dispute between Binance and the SEC.
Circle firmly contends that stablecoins should not be categorized as securities by the SEC.
They argue that individuals who acquire stablecoins are not doing so with the intention of deriving profits, thereby challenging the SEC’s attempt to regulate these assets as securities.
In summary, Paradigm’s criticism of the SEC centers on the agency’s unconventional approach to legal action against Binance, which they believe goes beyond established rulemaking procedures and could have far-reaching implications for the cryptocurrency and securities landscape.
Meanwhile, Circle has joined the legal dispute, asserting that stablecoins should not be treated as securities by the SEC due to their distinct nature and use cases.
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