Paul Grewal, the chief legal officer of Coinbase, the largest crypto exchange in the United States, said the U.S. Securities and Exchange Commission's (SEC) response to Binance's motion to dismiss the SEC's lawsuit demonstrates the necessity of a legislative regulatory framework for digital assets. Binance, the largest crypto exchange in the world, filed a motion to dismiss the lawsuit in September on the grounds that the SEC lacks the authority to regulate the crypto industry.
"Overall, this brief underscores why clarity from the courts is so important. And why it equally important that Congress pass comprehensive crypto legislation in the US to put an end to these distortions," Grewal said.
Grewal said in a post on X that the SEC's claim that existing securities laws give it authority over digital assets misrepresents law. The SEC must argue transactions on crypto exchanges are "investment contracts" and therefore "securities" for it to have this authority. But it has failed to dispute an investment contract involves "a contractual right to profits, income or business enterprise assets," according to Grewal.
According to a document copy, the SEC's opposition filed Nov. 7 against Binance's motion states that Howey test used in determining if an investment contract exists is "a flexible rather than static principle."
As recently as 2021, Gary Gensler, chair of SEC acknowledged no regulatory framework existed giving SEC control over crypto exchanges and "only Congress" could provide such authority, according to a copy of Binance's dismissal motion. Congress members have considered over a dozen legislative proposals for crypto industry regulation but none would provide sole regulatory power to SEC over the industry. The dismissal argues that court is being asked by SEC for making major policy decisions which "only Congress can make."
In citing the case of SEC v Ripple Labs Inc., where a judge determined initial tokens sales constituted securities while later ones including those made to the public were not, the motion argues the SEC's recent actions against Binance assume all crypto transactions as securities. Other countries have implemented legislative digital assets regulations instead of enforcement-based regulations.
A recent report from the SEC's Inspector General Office acknowledges "gaps exist in United States' regulation of crypto asset activities" and notes "caselaw concerning securities laws application to crypto assets is limited and still developing."
