Venture capital firm Paradigm has expressed its disapproval of the United States Securities and Exchange Commission (SEC) for sidestepping the usual rulemaking procedures in its ongoing legal action against the cryptocurrency exchange Binance.

In a statement issued on September 29, Paradigm criticized the SEC for using the allegations in its complaint as a means to modify the law without following the established rulemaking process. Paradigm firmly believes that the SEC is overstepping its regulatory boundaries and has vehemently opposed this approach.

Back in June, the SEC initiated legal proceedings against Binance, alleging multiple violations of securities laws, including operating without the required registration as an exchange, broker-dealer, or clearing agency. Paradigm also highlighted that the SEC has been pursuing similar cases against various cryptocurrency exchanges recently and expressed concerns that the SEC's position "could significantly reshape our understanding of securities law in several critical aspects."

Additionally, Paradigm has raised concerns about the SEC's use of the Howey test. The Howey test, which originated from a 1946 U.S. Supreme Court case involving citrus groves, is commonly employed by the SEC to determine if transactions qualify as investment contracts and thus fall under securities regulations.

In its amicus brief, Paradigm argues that many assets are actively promoted, bought, and traded based on their potential for profit. However, the SEC has consistently exempted these assets from being classified as securities. The brief also highlights examples like gold, silver, and fine art to emphasize that simply having the potential to appreciate in value does not automatically make their sale a securities transaction.

In a related development, Circle has entered the ongoing legal dispute between Binance and the SEC. Circle asserts that stablecoins should not be labeled as securities because individuals who acquire stablecoins do so without the intention of making a profit.