Crypto.com Sues SEC, Chair Gary Gensler After Receiving Wells Notice

• Crypto.com has sued the SEC after receiving a Wells Notice from the U.S. regulator.
• The notice, a warning the agency is considering bringing charges against the crypto exchange, was sent on Aug. 22.
• CEO Kris Marszalek said it brought the case to limit the SEC's "unauthorized overreach and unlawful rulemaking" and "protect the future of crypto in the U.S."

Cryptocurrency exchange Crypto.com said it sued the U.S. Securities and Exchange Commission, Chair Gary Gensler and its four commissioners after the regulator sent a Wells Notice – a warning that an enforcement action might be coming – to the company.

The court filing was made "to protect the future of crypto in the U.S.," CEO Kris Marszalek said in a posting on X. The suit is "a warranted response to the SEC's regulation by enforcement regime which has hurt more than 50 million American crypto holders."

The Wells Notice was sent to Crypto.com on Aug. 22, the filing revealed. Such notices are preliminary warnings stating charges the SEC may bring. They usually lead to enforcement actions.

The SEC has been regulating the crypto sector through a series of enforcement activities, an approach that Crypto.com and others in the industry, including Binance, Ripple and Coinbase, are fighting. In August, OpenSea received a Wells Notice alleging non-fungible tokens (NFTs) on its platform were securities. OpenSea CEO Devin Finzer said at the time the company was "shocked" but ready to "stand up and fight." In April, decentralized crypto exchange Uniswap also received one, which it urged the SEC to withdraw.

Crypto.com "seeks declaratory and injunctive relief to prevent the Securities and Exchange Commission ('SEC') from unlawfully expanding its jurisdiction to cover secondary-market sales of certain network tokens sold on the company's platform," the suit said. The suit was filed by Foris DAX Inc., a company incorporated under the laws of the state of Delaware and operates under the business name of Crypto.com.

The filing said the SEC determined network tokens, except for bitcoin (BTC) and Ethereum's ether (ETH), as securities and thus issued the notice to Crypto.com, which offers trading of other cryptocurrencies, "for operating as an unregistered broker-dealer and securities clearing agency under the federal securities laws."

Separately, Crypto.com filed a petition the SEC and the other primary U.S. markets regulator, the Commodity Futures Trading Commission, "to confirm via joint interpretation that certain cryptocurrency derivative products are solely regulated by the CFTC."

The SEC does not comment on the existence of a possible investigation, an agency spokesperson told Bloomberg. The agency did not immediately respond to a CoinDesk request for comment.

Crypto.com's filing revealed that the SEC had been investigating the company for more than two years, with a formal investigation initiated on March 28, 2023.

Crypto.com's case

Crypto.com argues that the SEC is defining "every network token in existence" as a security and "arbitrarily exempting only bitcoin and ether from its scope despite substantial similarities."

The regulator has not said which tokens traded on the company's platform it considers as securities, according to the filing. Crypto.com is seeking a ruling that none are securities and that it "does not operate as an unregistered securities broker-dealer or securities clearing agency."

The industry has been calling for the U.S. to create bespoke rules for the sector to provide clarify for participants. In May, the House of Representatives approved a wide-ranging crypto bill, the Financial Innovation and Technology for the 21st Century Act (FIT21), which has yet to be considered by the Senate.

Cronos (CRO), the native token of the Cronos blockchain that Crypto.com introduced, fell as much as 4.7% after Marszalek's posting on X and was recently trading 2.4% lower.

UPDATE (Oct. 8, 14:14 UTC): Adds X posting, CRO token in last paragraph; changes lead photo.

UPDATE (Oct. 8, 16:20 UTC): Adds context, details throughout.