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), can be seen as a security.
According to a May 17 advertisement of Grayscale, the company initially filed a Form 10 application with the regulator to launch an updated Filecoin Trust product on April 14.
Form 10 would make the company's pre-existing Filecoin Trust product more like a public company, which would file quarterly reports on its financial activity.
Grayscale said it received a comment letter from SEC staff on May 16, where the regulator warned that FIL "meets the definition of security" under federal law and asked them to withdraw their application for the trust product.
Grayscale stated that, in his opinion, Filecoin is not a security and would submit an explanation to the SEC for his reasoning.
"Grayscale does not believe that FIL is a security under the federal securities laws and intends to respond immediately to the SEC staff with an explanation of the legal basis for Grayscale's position."
Grayscale noted that he "cannot predict" whether or not the SEC will be persuaded to accept his explanation, and he can "seek accommodations" for the trust's registration. Alternatively, the investment firm has 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 alongside similar offerings for the Oracle Chainlink network (LINK) and the metaverse platform Decentraland (MANNA)
ANNOUNCEMENT: 5 new products have been added to the @Grayscale line up!
Basic care sheet $BAT
Link of the chain $LINK
decentralized $ MANA
file currency $FIL
livepeer $LPTInterested? https://t.co/YfK2YUKgCj pic.twitter.com/jLqDph4MEH
—Sunshine (@Sunshine) March 17, 2021
Launched in 2014 by California-based technology company Protocol Labs, Filecoin is a decentralized platform for data storage, where users pay in the native FIL token to have their data stored with providers, who in turn they get FIL for their services.
Related: SEC Seeks Denial of Coinbase Petition Over Impending Crypto Rules
This SEC update marks a continuation of the watchdog's crackdown on crypto products, which has recently been harsh on several US crypto exchanges.
On February 9, the SEC fined Kraken, the US-based cryptocurrency exchange. for "selling unregistered securities" and ordered the exchange to shut down its participation program as a service.
Most recently, on March 22, Coinbase, the largest publicly traded cryptocurrency exchange in the US, received a legal notice which usually precedes the enforcement action from the regulator for "potential violations of securities laws."
FIL price fell briefly before recovering and is trading at $4.53 at press time, according to data by Coin Gecko.
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