- Paradigm, a company known for its significant investments in decentralized finance companies, has intervened as an expert in the ongoing “unregistered securities sale case” between the SEC and Bittrex.
- Paradigm argues that the SEC does not have the right to intervene in secondary markets (OTCs, centralized and decentralized exchanges).
- Paradigm also criticizes SEC Chairman Gary Gensler, stating that the SEC now seems to believe it has authority that Gensler previously stated it did not have.
Paradigm Intervenes in SEC-Bittrex Case
Paradigm, a company recognized for its substantial investments in decentralized finance companies, has stepped in as an expert in the ongoing legal dispute between the Securities and Exchange Commission (SEC) and the Bittrex exchange. Paradigm asserts that the SEC does not possess the authority to meddle in secondary markets, such as over-the-counter markets, centralized exchanges, and decentralized exchanges.
Shift from Primary to Secondary Markets
According to documents shared by Paradigm’s legal advisor Rodrigo Seira, the company claims that the SEC’s statements towards Bittrex and other crypto exchanges fundamentally deviate from its previous statements towards initial token sellers. The SEC initially sought to regulate funding systems under the Howey test in many cases. However, Paradigm observes that the SEC now appears to want to extend its regulatory boundaries to secondary markets as well, claiming jurisdiction over these markets.
Gensler’s Changing Stance on SEC Authority
Paradigm also made critical comments about SEC Chairman Gary Gensler. Referring to a speech Gensler made in 2021, Paradigm noted in its court documents that Gensler had stated that the SEC did not have the authority to regulate secondary markets. Despite no legal changes in this area since then, Paradigm argues that the SEC’s actions indicate that the agency now believes it possesses the authority that Gensler previously denied.
Secondary Markets and the Howey Test
In its court opinion, Paradigm further argued that there is no legal basis for viewing a token sold through an ICO as an investment contract, or for viewing transactions in secondary markets where this token is sold as “investment contract transactions.” Over the past six years, the SEC has opened dozens of cases and sued individuals who sold crypto assets through initial funding sales. Some courts have agreed with the SEC, stating that these are investment contracts under the Howey test. However, other courts have recognized the difference between token sales and third-party market sales of tokens, ruling that the Howey test does not cover transactions between third parties in secondary markets. Therefore, Paradigm asserts that the theories produced by the SEC are unprecedented and lack precedent.
In conclusion, Bittrex had already announced it would end its operations in the US a few weeks before the SEC filed its lawsuit. The SEC’s decision to sue a company that was certain to exit the country was heavily criticized. Bittrex also filed for bankruptcy in May.
