Venture capital firm Paradigm has criticized the United States Securities and Exchange Commission (SEC) for avoiding traditional rulemaking procedures in its current legal action against the cryptocurrency exchange Binance.
In a statement issued on Friday, September 29, Paradigm stated that the SEC is attempting to circumvent the established rulemaking process by using the allegations in its complaint to change the law.
Paradigm firmly believes that the SEC is exceeding its regulatory boundaries and further states that it vehemently opposes this tactic.
The SEC initiated legal action against Binance in June, alleging multiple securities law violations, including operating without the required registration as an exchange, broker-dealer, or clearing agency.
Screenshot of Paradigm’s amicus brief Source: Paradigm
In addition, Paradigm emphasized that the SEC has recently pursued similar cases against numerous cryptocurrency exchanges and expressed concern that the SEC’s posture “could fundamentally reshape our understanding of securities law in several crucial respects.”
In addition, Paradigm raised concerns about the deficiencies in the SEC’s application of the Howey test. The Howey test, which originated in a 1946 U.S. Supreme Court case involving citrus groves, is frequently used by the SEC to determine whether transactions satisfy the criteria for investment contracts and therefore fall under securities regulations.
In its amicus brief, Paradigm argued that many assets are actively marketed, purchased, and traded based on their potential for profit.
However, the SEC has consistently excluded them from classification as securities. In addition, the brief cited instances, such as gold, silver, and fine art, demonstrate that the mere potential for value appreciation does not automatically qualify their sale as a security transaction.