The United States Securities and Exchange Commission (SEC) has asked Grayscale Investments to withdraw its application for a Filecoin Trust, warning that its underlying asset, Filecoin (FIL), could be seen as a security.
According to a May 17 announcement from Grayscale, the company initially submitted a Form 10 application to the regulator to launch an updated Filecoin Trust product on April 14.
Form 10 will see the company’s main product Filecoin Trust become more similar to a public company, filing quarterly reports on financial activity.
Grayscale said it received a comment letter from SEC staff on May 16, in which the regulator immediately warned that FIL “meets the definition of a security” under federal law and asked them to i -withdraw their application for the trust product.
Grayscale stated that in its view, Filecoin is not a security and it will send an explanation to the SEC for its reasoning.
“Grayscale does not believe that FIL is a security under federal securities laws and intends to respond promptly to SEC staff with clarification of the legal basis for Grayscale’s position.”
Grayscale noted that it “cannot predict” whether or not the SEC will be persuaded to accept its explanation, and may “seek accommodations” for the trust’s registration. On the other hand, the investment company warned that it may be forced to dissolve the trust in its entirety.
Grayscale Filecoin Trust was launched by the asset manager on March 17, 2021 along with similar offerings for the oracle network Chainlink (LINK) and metaverse platform Decentraland (MANA)
NOTICE: 5 new products have been added to @Grayscale line!
Interested? https://t.co/YfK2YUKgCj pic.twitter.com/jLqDph4MEH
— Sunshine (@Sunshine) March 17, 2021
Launched in 2014 by the California-based tech company Protocol Labs, Filecoin is a decentralized platform for data storage, where users pay the native FIL token to have their data stored with providers, who in turn earn FIL for their services.
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This update from the SEC marks a continuation of the watchdog’s watch over crypto products, which recently fell hard on many US crypto exchanges.
On February 9 the SEC fined US-based crypto exchange Kraken for “selling unregistered securities” and ordered the exchange to shut down its staking-as-a-service program.
Recently, on March 22, Coinbase — the largest publicly traded crypto exchange in the US — received a legal notice that usually precedes enforcement action from the regulator for “potential violations of securities laws.”
The price of FIL dipped briefly before rebounding and was trading at $4.53 at press time, according to data from CoinGecko.
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