{"id":172,"date":"2024-11-01T16:21:41","date_gmt":"2024-11-01T20:21:41","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/fintech\/?p=172"},"modified":"2025-04-03T14:41:07","modified_gmt":"2025-04-03T18:41:07","slug":"crypto-com-acquires-broker-dealer-while-suing-the-sec","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/fintech\/2024\/11\/01\/crypto-com-acquires-broker-dealer-while-suing-the-sec\/","title":{"rendered":"Crypto.com Acquires Broker-Dealer While Suing the SEC"},"content":{"rendered":"\n

By Terry Weiss<\/a> and Alek Smolij<\/a><\/em><\/p>\n\n\n\n

Crypto.com, one of the world\u2019s largest cryptocurrency trading platforms which claims to have over 100 million users, announced this week an acquisition of Watchdog Capital, LLC, an SEC-registered broker dealer with the capability to trade traditional securities.  The move is significant because while there has been a deliberate expansion into crypto by some traditional securities firms (whether it be allowing the trading of crypto ETFs or direct ownership in more limited cases), this move is interesting for another reason: on one hand Crypto.com will expect to need the regulatory support from the SEC as it undertakes this expansion, but at the same time it is suing the SEC, contending that the regulator has overstepped its authority in the crypto space.  <\/p>\n\n\n\n\n\n\n\n

Crypto.com already has made a big splash with an aggressive promotional campaign that includes the naming rights to the Los Angeles Lakers stadium and ad time during the Super Bowl.  It has already made efforts to make trading crypto easier for users worldwide, including a 2024 partnership with Standard Chartered that expanded the platform\u2019s capability for users to deposit fiat currency and convert it into crypto. <\/p>\n\n\n\n

Watchdog Capital is a Portsmouth, New Hampshire based broker-dealer that touts its experience with Bitcoin, blockchain, and fintech companies on its website.  Currently, it appears that Watchdog Capital only offers securities pursuant to various SEC exemptions including Section 4(a)(2) private placements and Regulation Crowdfunding offerings.  Prior to the Crypto.com acquisition, Watchdog Capital appears to have targeted accredited and high net worth investors in lieu of traditional retail.<\/p>\n\n\n\n

Crypto.com\u2019s press release regarding the acquisition, however, details larger plans for Watchdog Capital\u2019s platform.  Crypto.com states that it is \u201caggressively working towards integrating traditional financial tools with digital financial capabilities,\u201d and that the acquisition \u201cwill offer users in the U.S. the ability to engage with stocks and options markets.\u201d  And, Watchdog\u2019s website indicates that it is hiring FINRA Series 7 licensed customer service representatives, potentially indicating that it is staffing up to anticipate heightened interest with Crypto.com throwing some of its substantial marketing budget behind the new acquisition.  Perhaps Crypto.com wants to become a one-stop shop to invest in both crypto markets and traditional equity markets.  However, it is unclear what type of equities Crypto.com plans to offer through Watchdog\u2019s broker dealer platform and whether, at some point, a Crypto.com investor could purchase a share of Ford stock and a fraction of bitcoin on the same platform. <\/p>\n\n\n\n

Crypto.com\u2019s acquisition of Watchdog Capital and plan to offer traditional equities comes shortly after Crypto.com filed a lawsuit in early October 2024 against the SEC immediately after the SEC issued a Wells notice.  The action, captioned Foris DAX Inc. d\/b\/a Crypto.com v. Securities and Exchange Commission, et al.<\/em>, is currently pending in the United States District Court for the Eastern District of Texas.  The civil lawsuit seeks declaratory and injunctive relief to, as Crypto.com puts it, \u201cprevent the Securities and Exchange Commission\u2026from unlawfully expanding its jurisdiction to cover secondary-market sales of certain network tokens sold on Crypto.com\u2019s platform.\u201d  The complaint details the history of the SEC\u2019s attitude towards digital crypto assets and alleges that under current Chair Gary Gensler, the SEC has unilaterally sought to regulate crypto assets (other than Bitcoin and Ethereum) under the category of \u201cCrypto Asset Securities.\u201d  The lawsuit notes that the SEC\u2019s history of aggressive litigation towards crypto companies and \u201cinvention\u201d of the concept of Crypto Asset Securities are both unfair and unlawful. <\/p>\n\n\n\n

The SEC has not yet answered Crypto.com\u2019s lawsuit.<\/p>\n\n\n\n

Crypto.com\u2019s lawsuit is the latest in a series of preemptive lawsuits filed by crypto actors against the SEC alleging that the SEC is overstepping its legal authority in its crypto regulation.  Many of these lawsuits have been filed in federal court in Texas.  While the crypto actors in these lawsuits have not stated their reason for filing these suits in Texas, it is likely that they are attempting to take advantage of potentially favorable Fifth Circuit precedent.  In Jarkesy v. SEC<\/em>, the Fifth Circuit concluded that the SEC\u2019s in-house administrative enforcement proceedings were unconstitutional.  Additionally, other decisions by Fifth Circuit courts have been characterized as being friendly to businesses and unfriendly to administrative agencies like the SEC. <\/p>\n\n\n\n

Crypto.com\u2019s Texas lawsuit puts it at odds with the SEC and makes clear that Crypto.com disagrees with the SEC\u2019s authority to regulate crypto assets.  It has publicized the lawsuit against the SEC as attempting to \u201cprotect the future of the crypto industry in the U.S\u2026against a misguided federal agency acting beyond its authorization under the law,\u201d according to a press release publicizing the lawsuit.  The company will have to square this approach with its decision to offer traditional equities, which are clearly within the SEC\u2019s regulatory jurisdiction and will require Crypto.com to cooperate with the SEC in order to successfully offer equities products.  Additionally, crypto actors should follow how Crypto.com integrates equity offerings into its platform and whether it offers investors just the ability to invest in fintech-forward equities or plans to offer the ability to purchase stock in large, publicly traded companies through Watchdog\u2019s broker-dealer platform.  One thing is clear: Crypto.com\u2019s move into the traditional equities space is another step towards bringing crypto assets in front of retail investors. <\/p>\n\n\n\n

Disclaimer:<\/strong> The content provided is for informational purposes only and does not constitute financial, investment, or legal advice. While our law firm has substantial experience in cryptocurrency law and regulation, we do not offer investment advice or opinions on cryptocurrency as an investment. Consult a financial advisor before investing.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Terry Weiss and Alek Smolij Crypto.com, one of the world\u2019s largest cryptocurrency trading platforms which claims to have over 100 million users, announced this week an acquisition of Watchdog Capital, LLC, an SEC-registered broker dealer with the capability to trade traditional securities.  The move is significant because while there has been a deliberate expansion … <\/p>\n

Continue reading “Crypto.com Acquires Broker-Dealer While Suing the SEC”<\/span><\/a><\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[96,95,30,97,21],"ppma_author":[12],"class_list":["post-172","post","type-post","status-publish","format-standard","hentry","category-general","tag-broker-dealer","tag-crypto-com","tag-cryptocurrency","tag-regulatory","tag-securities"],"authors":[{"term_id":12,"user_id":6,"is_guest":0,"slug":"duanemorris3","display_name":"Duane Morris","avatar_url":"https:\/\/blogs.duanemorris.com\/fintech\/wp-content\/uploads\/sites\/40\/2020\/10\/dmlogo.jpg","author_category":"1","last_name":"Davies","first_name":"Thomas","job_title":"","user_url":"https:\/\/www.duanemorris.com","description":"Visit the Duane Morris website.<\/a>"}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/fintech\/wp-json\/wp\/v2\/posts\/172","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/fintech\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/fintech\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/fintech\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/fintech\/wp-json\/wp\/v2\/comments?post=172"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/fintech\/wp-json\/wp\/v2\/posts\/172\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/fintech\/wp-json\/wp\/v2\/media?parent=172"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/fintech\/wp-json\/wp\/v2\/categories?post=172"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/fintech\/wp-json\/wp\/v2\/tags?post=172"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/fintech\/wp-json\/wp\/v2\/ppma_author?post=172"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}