SNEAK PEEK

• The SEC asserts that FIL meets the definition of security.
• Grayscale contests the classification of FIL as a security and intends to respond to the SEC’s request, but the outcome remains uncertain.
• The SEC staff sent Grayscale a comment letter stating that FIL qualifies as a security under federal securities laws

Grayscale has revealed that the U.S. Securities and Exchange Commission (SEC) has requested the withdrawal of its application to introduce a trusted product centered around Filecoin (FIL), citing concerns that it may qualify as an investment company.

🚨NEW: @Grayscale says the @SECGov has asked it to withdraw an application to launch a $FIL Trust product on the grounds that it might meet the definition of an investment company and that $FIL meets the definition of a security.

Interesting that the SEC investigated @Filecoin…

— Eleanor Terrett (@EleanorTerrett) May 17, 2023

Additionally, the SEC’s request stems from the assertion that FIL, the native cryptocurrency of the Filecoin network, falls under the definition of security. This development has raised eyebrows as the SEC investigated Filecoin five years ago without raising any red flags regarding the potential product classification as an unregistered security.

The SEC informed Grayscale that Filecoin’s FIL token fulfills the criteria for being classified as a security according to relevant laws. Consequently, the Filecoin Trust managed by Grayscale is considered an investment company. The SEC instructed Grayscale to withdraw its registration promptly.

Grayscale contested that Filecoin’s FIL token is a security and expressed its intention to respond to the SEC. However, Grayscale remains uncertain whether the SEC will accept its legal argument, grant any accommodations, or compel the dissolution of the Filecoin Trust.

On May 16, 2023, the SEC staff sent Grayscale a comment letter expressing their perspective that the underlying asset of the trust, FIL, qualifies as a security according to federal securities laws.

Consequently, they stated that the trust seems to fulfill the criteria of an investment company as defined in the Investment Company Act of 1940. The SEC staff urged Grayscale to promptly initiate the process of withdrawing the registration statement.

The United States regulatory watchdog’s increased strictness on cryptocurrency products coincides with the release of this news. The largest cryptocurrency exchange in the U.S., Coinbase, has recently been served a legal notice that typically precedes enforcement action from the regulator due to “potential violations of securities laws.”

At the time of reporting, the Filecoin token showed bullish sentiment, with the FIL token experiencing a price surge of 3.55%. Currently, traders are actively trading the FIL token at $4.57, with lows of $4.40 and highs of $4.64.

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• Source: https://investorbites.com/grayscale-challenges-secs-classification-of-filecoins-fil-token-as-security/