SEC Overstepping Jurisdiction in Bittrex Case

Paradigm’s special crypto counsel said the investing platform submitted an amicus brief in the ongoing SEC v. Bittrex case. Paradigm argued against the Securities and Exchange Commission’s (SEC) attempt to expand its regulatory reach over cryptocurrency secondary markets.

As a non-party, Paradigm argues that the SEC’s claims lack legal merit. It has called for the dismissal of the Case.

The Bittrex Case Focus

Paradigm’s counsel, Rodrigo Seira, noted in tweets that the SEC’s claims against Bittrex and other crypto exchanges differ fundamentally. It is comparing them to the agency’s previous cases against token sellers.

It says the Howey test traditionally served as the SEC’s primary means of regulating fundraising methods. But, Seira argues that the SEC wants to increase its scope.

He noted,

“But in the recent cases targeting crypto exchanges, the SEC is attempting to expand its authority past the initial fundraising transactions, to encompass downstream sales of crypto assets.”

Paradigm asserts that the SEC has no legal grounds to argue that the asset itself is an investment contract. It also adds that secondary market transactions are ‘investment contract transactions’ is also unfounded.

Bittrex Exited the US Market After Scrutiny

The watchdog served Bittrex with a Wells Notice in April. The US SEC alleged that it operated as an exchange, broker-dealer, and clearinghouse without registrations. The complaint also named six altcoins as securities.

After two months, Paradigm has encouraged the SEC to forgo this legal action and work with Congress to create comprehensive crypto law.  

After leaving the US market in May, Bittrex is trying to get the case dismissed alongside its rival Coinbase.

The SEC filed a complaint against Bittrex during a severe legal campaign against multiple cryptocurrency exchanges, most recently Coinbase and Binance. But, this time, Paradigm highlights that the SEC aims to establish unwarranted control over the crypto secondary markets.

Fighting for a Case Dismissal

Rodrigo Seira cites SEC Chair Gary Gensler acknowledging in congressional testimony that the agency lacked authority to regulate these secondary markets. Paradigm’s counsel pointed out that the law has not changed since Gensler’s statement in 2021, as he affirmed that “the exchanges trading in these crypto assets do not have a regulatory framework.”

The court filing cited Paradigm’s contention that the transactions do not include “investment contracts” and are not regarded as “securities” under the agency’s mandate.

In its brief, Paradigm argues that the SEC’s recent efforts to penalize businesses for noncompliance retroactively are unusual.

The company also references a thorough analysis of Howey test-related federal appellate cases. It confirms that no court has ever ruled that an asset used in an investment contract transaction constitutes a security in and of itself. This is a point that Ripple has frequently raised in its litigation with the SEC.

In light of this, Paradigm requests that the court dismiss the SEC’s complaint against Bittrex.

Meanwhile, the need for clear legislation to guide the regulation of cryptocurrencies while fostering innovation remains paramount.