On Monday, crypto exchange Bittrex became the latest victim of the US Securities and Exchange Commission’s (SEC) enforcement actions. The regulator filed a lawsuit against the Seattle-based company, labeling six tokens as securities.

The SEC accused Bittrex of failing to register with the agency as a broker-dealer or an exchange, a requirement under the Securities Exchange Act of 1934 for any company offering securities to the public. For this accusation to hold water, the regulator must prove that at least one of the crypto assets listed on the Bittrex platform is a security.

Tokens mentioned in Bittrex Lawsuit

SEC Chairman Gary Gensler has for long claimed that the Commission considers all tokens as securities except Bitcoin. In that regard, the watchdog mentions six coins as examples of securities offered by Bittrex. They include Dash (DASH), Algorand (ALGO), OMG Network (OMG), Naga (NGC), Monolith (TKN), and Real Estate Protocol (IHT). The SEC claimed that the list could be longer.

Of the six tokens, Algorand is the biggest in terms of market cap. Its total value stands at $1.63 billion, according to data from CoinGecko. ALGO price has declined by 4.5% in the past 24 hours to trade at $0.22 on Tuesday evening.

The inclusion of Algorand in the Bittrex lawsuit came as a surprise to some crypto enthusiasts, considering that a few months ago, Gensler described the network as an innovative technology with the potential to scale up ride-sharing services such as Uber.

It is worth highlighting that the issuers of the six tokens have not been mentioned as defendants in the lawsuit, nor has the SEC announced leveling separate charges against them. According to lawyer J.W. Verret, the inclusion of the six tokens in the Bittrex lawsuit is a legal tactic that the SEC has applied in previous lawsuits.

The lawyer pointed to the agency’s insider trading lawsuit against Ishan Wahi, the Coinbase ex-product manager. At the time, the SEC claimed that the traded tokens were securities without charging their issuers.

What Does the SEC Use to Consider a Token Security?

The regulator has been using the Howey Test to determine whether a crypto asset can be considered a security. The legal framework describes security as ‘the investment of funds in an enterprise with an expectation of returns generated by the efforts of others.’

In the Bittrex lawsuit, the SEC labeled Algorand as a security on the grounds that its issuer, Algorand Foundation, constitutes an enterprise that played a big role in promoting ALGO’s initial token sale in 2019. According to the agency, the Algorand Foundation’s marketing efforts, along with its commitment to growing the network, caused ALGO investors to expect profits from holding the token.

Meanwhile, Verret says the SEC claims won’t survive a challenge in court. He anticipates that the two parties will likely discuss a settlement without the involvement of a judge.