SEC labels Algorand and five other tokens as securities in Bittrex lawsuit

The Securities and Exchange Commission (SEC) categorized six cryptocurrencies as securities in its lawsuit against crypto exchange Bittrex on Monday, highlighting them as potentially central assets in an enforcement action against the Seattle-based firm.

At the heart of the SEC’s complaint against Bittrex is that the platform failed to register with a watchdog such as a stock exchange, broker-dealer, or clearing agency—a requirement to offer securities to customers in a manner regulated by the Securities Exchange Act of 1934.

For that to be true, the SEC must determine that at least one of the tokens made available by Bittrex is actually a security. And although SEC Chairman Gary Gensler has argued that the label applies anything but BitcoinThe agency has honed in on six specific coins in this latest action.

The tokens listed as examples of “crypto asset securities” are OMG Network (OMG), Dash (DASH), Monolith (TKN), Naga (NGC), Real Estate Protocol (IHT) and Algorand (ALGO). The agency even says more are likely to come, describing the selection as a “non-exhaustive list.”

Of the tokens included in the lawsuit, Algorand is by far the largest by market capitalization, with a total value of about $1.6 billion, according to CoinGecko. Over the past 24 hours, the token has fallen 4% to $0.22 at the time of writing.

Algorand did not immediately respond to requests for comment from Decrypt.

Crypto Twitter zeroed in on the connection between Gensler and Algorand following the announcement of the Bittrex lawsuit, with Gensler previously calling the network “great technology” that could support a ride-sharing service like Uber.

None of the six token issuers are named as defendants in the Bittrex lawsuit, and the SEC had not announced any separate charges against them as of Monday. The legal tactic has a similarity to the inclusion of coins in other lawsuits filed by the SEC, Lawrence Law attorney JW Verret told Decrypt.

“It strikes me as very similar to the Wahi case,” he said, referring to the SEC’s insider trading lawsuits filed against former Coinbase product manager Ishan Wahi and two others last year. “They make claims that tokens are securities without suing the tokens themselves.”

The tokens named in the SEC’s case against Wahi are a completely different cast of crypto compared to those named in the Bittrex lawsuit, but the overall idea is that they all fall under the classification of securities using the Howey test.

Stemming from a 77-year-old lawsuit regarding a citrus grove in Florida, the Howey test is the SEC’s four-part method for determining whether an asset is a security, which involves “the investment of money in a joint enterprise with a reasonable expectation of profit to be derived from the efforts of others.”

The lack of overlap between coins in the Wahi case and Bittrex’s lawsuit may be a result of the SEC not trying to put its eggs in one basket, said Fireblock’s chief legal and compliance officer Jason Allegrante. Decrypt.

“Each case, depending on what the defendants want to do, is a potential test case,” he said. “There are probably assets that they feel pretty strongly meet the definition of a security, and I guess they kind of pick from that list and sprinkle them in as they go [about] in different cases.”

With respect to Algorand, the SEC alleges that the Algorand Foundation constitutes a joint venture, based on the nonprofit’s alleged role in conducting and promoting an initial token sale of ALGO in 2019.

“By promoting the ALGO token sale, the Algorand Foundation linked the potential growth of the Algorand blockchain to potential demand for the ALGO token itself, and to its own commitment to preserve a price floor for ALGO,” the lawsuit states.

The lawsuit notes that ALGO was added to Bittrex’s international and US-based platforms in April 2020.

In addition, the SEC alleges that statements made by Algorand and the network’s foundation “caused ALGO investors to reasonably expect to benefit from Algorand, Inc.’s and the Algorand Foundation’s efforts to expand the Algorand protocol.”

Speaking about the SEC’s case against Wahi, Blockchain Association Policy Advisor Marisa Tashman Coppel previously told Decrypt the case may have “major implications for the industry” potentially implicating other stock exchanges as venues that facilitate the sale of unregistered securities.

For example, as of Monday, ALGO was available on Coinbase and Kraken, two of the largest US-based exchanges. But considering how the SEC’s case against Wahi has made it this farVerret said a settlement is more likely as opposed to a ruling.

“I don’t think these allegations can survive a challenge in court,” Verret said. “I think the parties will settle and we won’t get a definitive answer, which is why the SEC is making these aggressive claims.”