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Binance Battle: Paradigm’s Bold Defense Against SEC’s Overreach

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Paradigm, a prominent investment firm, has submitted an amicus brief in favor of Binance, in which they critique the U.S. Securities and Exchange Commission (SEC) for overstepping its regulatory authority.

As outlined in documents submitted to the SEC, Paradigm’s position argues that assets like gold, silver, and art can appreciate in value over time, but this does not necessarily make their sale equivalent to a securities transaction. The firm firmly contends that such assets do not inherently possess the characteristics of securities.

As reported by TronWeekly, Circle also recently entered the legal fray between the SEC and Binance. Circle’s core argument is that stablecoins like Binance USD (BUSD) and USDC should not be labeled as securities because purchasers of these assets do not anticipate making a profit from them. According to Circle, payment stablecoins lack the essential attributes of an investment contract.

Paradigm’s Strong Stance in the Binance SEC Lawsuit

Paradigm’s official stateme­nt, released on Se­ptember 29th, clearly states that the company has no financial stake in Binance and is not an inve­stor in the exchange. De­spite this, Paradigm emphasized the­ significance of resisting governme­nt overreach and highlighted the­ importance of upholding principles without considering who is be­ing accused. 

The SEC’s lawsuit against Binance is part of a broader effort by the regulatory agency to assert control over cryptocurrency secondary markets. This move has prompted criticism from various quarters. 

SEC Chair Gary Gensler acknowledged the agency’s limitations in regulating these markets, stating that “the exchanges trading in these crypto-assets do not have a regulatory framework.”

Paradigm raises several objections to the SEC’s approach in its amicus brief. First, it disputes the SEC’s assertion that an “investment contract” does not necessitate a formal contract, citing statutory language and legal precedents emphasizing contractual obligations for future value delivery. 

Paradigm raises two ke­y arguments against the SEC’s theory. Firstly, the­y maintain that applying securities laws to ordinary asset sale­s disregards the absence­ of a “reasonable expe­ctation of profits.” Secondly, Paradigm asserts that the SEC’s e­xpansive interpretation of “inve­stment contract” excee­ds its authority and advocates for clear congressional authorization.

Paradigm Lawyer: “SEC Lacks Legal Basis To Regulate Secondary Crypto Markets”

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Rodrigo Seira, Paradigm’s Special Counsel took a shot at the United States market watchdog, saying that the SEC’s efforts to regulate secondary crypto markets lack legal justification. Citing the commission’s recent litigation against crypto exchange Bittrex, Seira posted a long Twitter thread explaining why he believed that the court should dismiss the case.

A few days ago, Paradigm filed an amicus brief in SEC vs. Bittrex that rejected the regulator’s attempt to expand its jurisdiction over crypto secondary markets. The filing argued that digital assets do not involve “investment contracts” and are therefore not securities transactions under the agency’s remit.

Moreover, a review of each appeal case to determine the most appropriate Howey affirms that no court has ever found that an asset that is the subject of an investment contract transaction is a security or that an asset in a secondary market is a securities transaction. And therefore, the Bittrex complaint should be “dismissed” since it bases its allegations on an arbitrary application of the Howey test, Seira concluded.

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Paradigm Lawyer: "SEC Lacks Legal Basis To Regulate Secondary Crypto Markets" 2

This is not the first time Paradigm has lent its assistance to a crypto entity that is being sued by the SEC. Back in Dec 2022, Paradigm along with the U.S. lobby group Blockchain Association filed amici briefs to lend support to blockchain firm Ripple Labs Inc. in the ongoing lawsuit against the Securities regulator.

Then, on May 11, this year, the firm requested to submit an amicus brief in support of Coinbase, arguing that the SEC had failed to establish clear guidelines or rules for digital asset companies operating in the United States.

The crypto investment firm earlier lambasted SEC chair Gary Gensler’s proposal to redefine the term exchange.” If approved, it would put decentralized exchanges under the Securities and Exchange Commission’s jurisdiction.

Paradigm Criticized SEC’s ‘Incoherent’ Attempt To Control Decentralized Exchanges

On June 8, it sent a detailed 14-page letter to the SEC secretary, Vanessa Countryman, referring to the SEC’s proposed redefining of the term “exchange” under the 1934 Securities Exchange Act.

To put things in perspective, the market regulator plans to amend the 89-year-old law so that decentralized exchanges [DEXes] and decentralized financing [DeFi] would be included in the definition of “exchange.” Since the term DEX contains the word “exchange,” the SEC intends to consider it similar to a securities or stock exchange.