Paradigm, a research-driven tech investment firm, has filed an amicus brief in support of Binance's motion to dismiss the lawsuit filed against it by the U.S. Securities and Exchange Commission (SEC). The filing states that Paradigm has not invested in Binance and has no financial interest in the case but believes the SEC has overstepped its authority.
Paradigm said it submitted the brief in an effort to prevent the SEC's "regulatory overreach" from negatively impacting innovation in the crypto industry and to ensure the SEC is not interfering with Congressional efforts to legislate effective regulations for the industry, according to a copy of the brief.
Paradigm asserted that the SEC's accusations against Binance hinge on the "mistaken notion" that digital assets are securities. This belief, Paradigm said, is contrary "to what we know about securities law" for multiple reasons. First, the Court would need to accept "the facially incredible argument" that a "contract" is not needed for an "investment contract." Paradigm said that an "investment contract" needs to promise the investor some future value, but digital asset purchasers are not promised anything except the asset.
Second, Paradigm argued, the SEC's theory would result in "ordinary asset sales" being placed within the scope of securities laws, but Courts have "long held" that transactions involving assets that could increase in value as a result of market forces are not the same as the "expectation of profits" that makes an asset sale an investment contract, according to the brief. Paradigm noted that asset sales also do not create common enterprises, which are another required component of investment contracts.
Third, Paradigm stated that the SEC lacks the “clear congressional authorization” it needs to assert its authority over the crypto industry.
"The SEC has provided no actionable ground rules for crypto asset issuers to follow; instead, its hide-the-ball approach has only set up cooperating industry participants for failure," the filing said. Paradigm asked the Court to grant Binance's motion to dismiss.
Binance, the largest crypto exchange in the world, and Changpeng Zhao (CZ), the exchange's CEO and founder, filed a motion to dismiss the SEC's lawsuit on Sept. 21, arguing that Congress needs to legislate regulations for digital assets before the SEC can claim authority over crypto, according to a copy of the motion. The motion cited the case of SEC v. Ripple Labs Inc., in which a federal judge recently determined that the initial sale of tokens to institutional investors constituted securities, but later sales, including those to members of the public, were not securities. The motion argued that the SEC's recent enforcement actions, including against Binance, are premised on the argument that virtually all crypto transactions are securities.
The motion said that the majority of the claims against Binance and CZ should be dismissed on the grounds that the SEC "fails to plausibly allege that any of the crypto assets at issue is a security," while the other charges should be dismissed because they are "impermissibly extraterritorial" or violate the fair-notice doctrine.
