Digital currency asset management firm Grayscale Investments announced on May 17 that it had received a request from the U.S. Securities and Exchange Commission (SEC) to withdraw its Filecoin Trust application.
The SEC’s request for withdrawal is based on the classification of the decentralized storage network Filecoin as a security, which makes it subject to securities regulations in the United States. This move highlights the increased scrutiny that the cryptocurrency industry is facing from regulators.
The SEC’s investigation of Grayscale Investments for potential securities law violations related to their cryptocurrency investment products further emphasizes this trend. Grayscale initially submitted a Form 10 application to launch an updated Filecoin Trust product back on April 14, requiring the firm to file quarterly financial reports.
On May 16, however, the SEC staff sent a comment letter to Grayscale saying that Filecoin met the definition of a security under federal law, and requested the firm to withdraw its application for a trust product. This is because Filecoin has yet to be registered with the SEC as a security. Grayscale disagrees with the classification of Filecoin as a security and plans to provide a legal explanation to the SEC staff.
“Grayscale does not believe that FIL is a security under the federal securities laws and intends to respond promptly to the SEC staff with an explanation of the legal basis for Grayscale’s position,” the company said following SEC’s finding.
Grayscale acknowledged that it could not anticipate whether the explanation would persuade the SEC, and it may have to request special provisions for the trust’s registration. Conversely, the company cautioned that it might be compelled to dissolve the trust altogether.
Continuous scrutiny from regulators
Filecoin is a decentralized platform for data storage launched in 2014 by research and development company Protocol Labs, where users pay in Filecoin tokens to store their data with providers who earn Filecoin in return.
Grayscale launched the Filecoin Trust and similar offerings for Chainlink and Decentraland on March 17, 2021. The Filecoin Trust is an investment vehicle that gives investors exposure to Filecoin.
The SEC’s classification of Filecoin as security is part of the agency’s ongoing scrutiny of crypto products, as it has previously penalized several US-based crypto exchanges.
For instance, on February 9, the SEC fined trading platform Kraken for selling unregistered securities and ordered it to shut down its staking-as-a-service program. Similarly, on March 22, another trading platform called Coinbase received a legal notice from the regulator for potential securities law violations.
According to data from the cryptocurrency ranking website CoinGecko, the price of Filecoin briefly dipped before rebounding and is currently trading at $4.53 as of the time of publication. This indicates a potential resilience of the Filecoin token against the impact of the SEC’s regulatory action.
ANNOUNCEMENT: 5 new products have been added to the @Grayscale line up!
Basic Attention Token $BAT
Chainlink $LINK
Decentraland $MANA
Filecoin $FIL
Livepeer $LPTInterested? https://t.co/YfK2YUKgCj pic.twitter.com/jLqDph4MEH
— Sonnenshein (@Sonnenshein) March 17, 2021
