Paradigm, a prominent crypto investment firm, has filed an amicus brief in the U.S. Securities and Exchange Commission’s (SEC) case against the U.S.-based cryptocurrency exchange Bittrex, saying it rejects the regulator’s “unsupported attempt to expand its jurisdiction over crypto secondary markets.”

Amicus briefs are legal documents supplied to a court of law containing advice or information relating to a case from an organization or an individual who isn't party to a case and acts as “a friend” of the court.

“The SEC’s claims against Bittrex and the other crypto exchanges are fundamentally different from its many prior cases against token sellers,” Paradigm said in a statement shared by the firm’s special counsel Rodrigo Seira.


Paradigm also pointed out that while in those cases the SEC was seeking to “regulate fundraising schemes under the Howey test,” in the recent cases targeting crypto exchanges the agency “is attempting to expand its authority past the initial fundraising transactions, to encompass downstream sales of crypto assets.”

Through these actions, which earlier this year involved Coinbase and Kraken, “the SEC is wrongfully attempting to lay claim over crypto secondary markets,” argues Paradigm.

The Seattle-based Bittrex served American users until March this year when it announced it was winding down operations due to the "current U.S. regulatory and economic environment."

Bittrex then filed for Chapter 11 bankruptcy in May, reporting more than 100,000 creditors with estimated liabilities and assets both within the $500 million to $1 billion range.


The SEC filed charges against Bittrex a month earlier, alleging the crypto exchange failed to comply with securities laws. The lawsuit also named Bill Shihara, the co-founder and former CEO of Bittrex, as well as Bittrex Global, the Bermuda and Liechtenstein-based entity that is legally and operationally distinct from Bittrex US.

Bittrex lawsuit should be dismissed, says Paradigm

The crypto investment firm, which in May filed a similar amicus brief in support of Coinbase, also slammed the SEC chair Gary Gensler, pointing to his own acknowledgment that the agency lacked the authority to regulate these same secondary markets.

Paradigm maintains that since the time Gensler made those statements in 2021, the legal landscape surrounding the issue has remained unchanged. However, recent developments have seen the SEC assert that the agency now possesses the very same authority that Gensler acknowledged was absent.

Consequently, the SEC is now pursuing the imposition of retroactive penalties on companies that have failed to comply with this newfound authority.

Moreover, the crypto investment firm argues that even if a cryptocurrency asset was first sold in a fundraising event such as an ICO, “the SEC has no legal basis to argue that the asset itself embodies an investment contract, or that secondary market transactions in that asset are investment contract transactions.”

“In the last six years, the SEC has pursued dozens of enforcement actions against persons who have sold crypto assets as part of their fundraising efforts, and courts have agreed that some of those sales were 'investment contract' offerings under the Howey test,” reads the court filing.

According to the firm, the few courts that managed to actually see with the distinction between token offerings and tokens involved have all recognized that the Howey test doesn't apply to transactions between third parties in a secondary market.

"The SEC’s theories are thus completely unprecedented,” said Paradigm, adding that the court should dismiss the Bittrex case. The firm also believes that instead of continued enforcement actions and lawsuits, the regulator “should join Congress in working on crypto legislation that supports innovation and protects investors.”


Decrypt has reached out to Bittrex US for comment and will update this story once we hear back.

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