Legal Experts React as SEC Regrets Confusion Over Its Crypto Asset Security Claim

The U.S. SEC expresses regret for any confusion it may have created through the use of its invented term, “crypto asset securities.” 

In an interesting development, Coinbase’s Chief Legal Officer (CLO) Paul Grewal called the public’s attention to the SEC’s recent efforts to backtrack on its claim that crypto assets themselves constitute securities. 

SEC Regrets Confusion Over Its Crypto Asset Security Definition 

Per Grewal, the SEC made this move in footnote six of the amended complaint in the Binance lawsuit.

Notably, the SEC said it regrets any confusion it may have invited by repeatedly using the term “crypto asset securities.” 

According to the SEC, the term does not imply that the crypto assets are inherently securities themselves. Instead, it uses the term as a shorthand for the expectations, set of contracts, and understanding surrounding the sale and distribution of the token. 

Interestingly, the SEC vowed never to use the term in the proposed amended complaint (PAC) to avoid further confusion. 

SEC Backtracks 

Last year, the SEC labeled ten crypto assets, including Solana (SOL) and Cardano (ADA), as securities in its lawsuit against Binance. A year later, the regulator requested that it wished to amend its complaint, eliminating the need for the court to issue a verdict characterizing the tokens as securities.

The SEC officially filed the amended motion yesterday, expressing regrets for the confusion its use of the term crypto asset securities has created in the lawsuit. 

Notably, Binance is required to file a response to the SEC’s motion for amendment by October 11, 2024. The world’s largest exchange is expected to either consent or oppose the SEC’s request. 

Legal Experts React 

Expectedly, top legal experts reacted to the SEC’s backtracking and admission of its wrong usage of crypto asset securities. 

Grewal, who called the public’s attention to the development, criticized the SEC, questioning how Ethereum (ETH) transactions were no longer classified as securities while the ten tokens at issue in the Binance lawsuit remain under scrutiny. He asserted that the SEC might reveal this sudden change only when it takes legal action against an entity. 

The Coinbase CLO added that the SEC has a long history of treating tokens as securities, questioning why the regulator chose to mislead the court with its recent filing. Interestingly, Grewal mentioned Ripple’s CLO Stuart Alderoty in the X thread, humorously stating that the SEC’s admission of wrongdoing would leave him perplexed. 

Reacting, Alderoty noted that the SEC admitted two things in the Binance lawsuit. First, the agency acknowledged that crypto asset security is a made-up term. Second, it requires a bundle of contracts, understandings, and expectations to prove that a crypto asset security is an investment contract. 

He added that it is about time the SEC admitted that the agency has become a twisted “pretzel of contradictions.”  

Furthermore, prominent legal expert James Murphy (a.k.a. MetaLawMan) expressed outrage about the SEC’s recent admission. 

The pro-XRP lawyer criticized the SEC’s “make it up as you go along enforcement strategy,” suggesting that the approach has harmed U.S. investors, damaged the country’s reputation for innovation, and harmed American companies.