Paradigm, a crypto research company, has submitted an amicus brief in the ongoing legal battle between the US Securities and Exchange Commission (SEC) and Binance and its founder and CEO, Changpeng “CZ” Zhao. The SEC filed the lawsuit in June, alleging they ran unauthorized exchanges and broker-dealers, among 13 other charges. On September 29, Paradigm released a statement criticizing the SEC for overstepping its boundaries.
Paradigm believes the SEC is trying to sidestep standard procedures to redefine the law, leveraging the serious claims in its case against Binance and associated parties.
The San Francisco-based firm supports its argument by challenging the SEC’s notion that an “investment contract” doesn’t necessarily imply a “contract.” Paradigm argues that legal precedent clearly indicates an investment contract requires a binding agreement promising future asset growth. They contend that, concerning cryptocurrencies, the SEC can’t present such an agreement, especially for tokens traded on secondary markets.
Moreover, Paradigm warns that if the SEC wins against Binance, it could broaden the scope of US securities laws to encompass various assets like gold, silver, and art, which are purchased in hopes of future value increase but aren’t considered investment contracts. Paradigm underscores that merely hoping an asset grows in value doesn’t establish a shared business venture, a crucial element of an investment contract. This is particularly true when there’s no direct connection between the asset’s originator and a secondary buyer, as is common with many cryptocurrencies.
In their concluding arguments, Paradigm advocates for transparent crypto regulations that bolster the SEC’s authority over the burgeoning crypto sector. They argue that the SEC’s reliance on the Howey Test, a legal benchmark from 77 years ago, lacks the precision needed for the multifaceted crypto industry. Paradigm concludes that the SEC’s efforts to impose crypto regulations based on a questionable interpretation of “investment contracts” using this outdated test necessitates explicit legislative action.
