(Kitco News) – The U.S. Securities and Exchange Commission (SEC) is showing no signs of slowing its crackdown on cryptocurrency exchanges as Uniswap Labs, the main developer behind Uniswap – the top decentralized exchange (DEX) – received a Wells Notice from the regulator, indicating that a lawsuit against the platform is imminent.
A Wells notice is a formal notification issued by the staff of a regulatory body to inform a company or individual that the staff has completed its investigation and intends to recommend that the Commission take enforcement action against them.
Uniswap chief legal officer Marvin Ammori confirmed the Wells notice in a post on X, saying, “Today’s Wells notice against @Uniswap is disappointing, but is not unexpected from this SEC. It’s another abuse of power – unsurprising from an SEC that: Last month, a federal judge ruled committed a ‘gross abuse of power’ by lying in court about a crypto project.”
“In Ripple, a judge ruled [the SEC] didn’t act ‘out of a faithful allegiance to the law,” he added. “In Grayscale, three judges ruled [the SEC] broke the law in denying a Bitcoin ETF, having no ‘reasonable and coherent’ explanation. In our case with @Uniswap, the SEC’s arguments are particularly weak.”
Ammori noted “The SEC has authority only over ‘securities’ – not any asset represented by a particular file format or technical standard,” and said, “Most tokens are clearly not securities – e.g BTC, ETH, stablecoins, meme coins. Nor generally are secondary market transactions, per the Ripple opinion.”
He added that the Uniswap Protocol, web app, and wallet “don't meet the legal definitions of securities exchange or broker,” and noted that “Just weeks ago, the judge in SEC v. Coinbase dismissed the claim that crypto wallets were brokers – *even if* the tokens at issue were securities.”
“A court (in Risley) has ruled the Uniswap Protocol is mainly used for lawful purposes,” Ammori pointed out. “The SEC's current exchange rule doesn’t cover it. So the SEC proposed a new rule, but we’ve explained why that would fail.”
“If the SEC had authority over our self-custodial, non-intermediated products, it could tell us how to register them. It can't and so it doesn't,” he said. “It has provided no clarity and no guidance – as several SEC commissioners have stated in multiple dissents.”
Ammori concluded the X thread by noting that “Uniswap products comply with US laws,” and said that while the protocol “welcomes sensible regulations for crypto and clear rule of law that we expect in the U.S.,” they will push back against “arbitrary enforcement and continued abuse of power. @Uniswap Labs is prepared to fight against this abuse, and we’re confident we’ll win.”
The announcement of the Wells notice wasn’t a shock to most who had been paying attention to actions by the SEC as the regulator has been investigating Uniswap Labs since 2021. The decentralized exchange (DEX) has previously delisted several tokens from its platform, citing growing regulatory pressure.
In an official response posted on the Uniswap Labs Blog titled “Fighting for DeFi,” the platform pushed back against the SEC’s allegations and reiterated that they are prepared to fight the charges.
“Despite SEC rhetoric that ‘most’ tokens are securities, the reality is that tokens are a digital file format, like a pdf or spreadsheet, and can store many kinds of value,” they wrote. “They are not intrinsically securities, just as every sheet of paper is not a stock certificate. The overwhelming volume of traded tokens are definitively not securities – they are stablecoins, community and utility tokens, and commodities like Ethereum and Bitcoin.”
“And tokens traded on secondary markets like Uniswap are not investment contracts,” they added. “In the circumstance where a token may represent a security, the SEC has refused to create a path for businesses to register.”
“We are confident that our products are on the right side of the law, and that our work is on the right side of history,” Uniswap Labs said. “While our legal team takes on this fight, we'll continue to do what we do best: build.”
Former SEC Internet Enforcement Chief John Reed Stark added some nuance to the conversation, tweeting that the Wells notice issued to Uniswap was “not surprising,” and recommending that Uniswap Labs attempt to handle the matter through the proper legal channels and avoid name-calling.
“I am always amazed when SEC Wells Notice recipients fight back by throwing stones at the SEC with obnoxious/insulting PR campaigns, like the one Uniswap seems to have begun,” he said. “Such futile attempts to rally the mob pretty much always backfire.”
“The Wells Notice gives the recipient an opportunity to provide a written explanation or argument (a ‘Wells submission’) as to why the SEC Commissioners should decline the staff’s recommendation,” Stark said. “The Wells Submission is nonpublic, unless the recipient opts to make it public (an option rarely exercised for obvious reasons).”
“I worked at the SEC Enforcement Division for almost 20 years, including 11 years as Chief of the SEC’s Office of Internet Enforcement and sent lots and lots of Wells Notices,” he said. “Any SEC lawyer will agree that responding to a Wells by berating the SEC, calling them names, etc. is a weak, risky and losing strategy, exacerbated in this case by Uniswap’s recanting of the tired, anemic, old and failed monologue chiding the SEC’s ‘abuse of power’ and lambasting the SEC’s ‘anti-innovative enforcement paradigm.’
“Expect the SEC Enforcement staff to lean in and file a voluminous and robust federal complaint, which will inevitably survive the usual motion to dismiss, prevail against the typical motion for summary judgment, and win on just about every other litigated issue that follows,” he warned. “Think I am wrong? I’m not.”
Stark cited an excerpt from a speech given by SEC Enforcement Director Gurbir S. Grewal last week to back up his assertion.
“Over the past decade, we [the SEC Enforcement Division] have confronted significant non-compliance and many, many creative attempts by market participants to avoid our jurisdiction, with some claiming that we are making it up as we go or regulating by enforcement, and others arguing that we are recklessly exceeding our authorities,” Grewal said.
“At the same time, we’ve been accused of picking winners and losers, stifling innovation, and driving crypto businesses to more favorable, foreign jurisdictions, wherever they may be,” he added. “A decade’s worth of verbal gymnastics that are just a backhanded way of saying, ‘we want a different set of rules than those that apply to everyone else.’ A decade’s worth of arguments that have served as nothing more than a distraction from the very real issues and risks that the crypto markets present for the investing public.”
“And most importantly, a decade’s worth of arguments that have been serially rejected in one way or another by court after court,” Grewal said. “As we have consistently maintained, and as court after court has confirmed, the federal securities laws apply equally to everyone. You don’t get your own rules.”
Previously, the SEC issued Wells notices to Coinbase and Binance warning about legal actions against the cryptocurrency exchanges, which were ultimately followed by lawsuits.
