Republican attorneys general from more than a dozen states have filed a lawsuit against the Securities and Exchange Commission alleging that the agency overstepped its authority by seeking to regulate cryptocurrencies.
The case is the latest sign of the crypto industry’s growing political influence. President-elect Donald Trump has promised to make the US the “crypto capital of the planet” and fire SEC Chairman Gary Gensler. The industry contributed more than $135 million to federal campaigns during the last election, with great success.
Plaintiffs in the lawsuit against the SEC include the attorneys general of Kentucky, Nebraska, Tennessee, West Virginia, Iowa, Texas, Mississippi, Montana, Arkansas, Ohio, Kansas, Missouri, Indiana, Utah, Louisiana, South Carolina, Oklahoma, and Florida. They were also joined by the DeFi Education Fund, an advocacy group backed by wealthy crypto investors.
They alleged that the SEC’s enforcement actions and categories of cryptocurrencies such as investment contracts exceed the agency’s statutory authority and “violate the basic principles of federalism and the separation of powers.” Instead, crypto regulation should be left up to the states, opponents argue.
“The SEC’s assertion of blanket rule without congressional authorization deprives the States of their rightful independent role and chills the development of new regulatory frameworks for the digital assets industry,” according to the complaint. “Worse, by trying to shoehorn digital assets into the government’s inappropriate securities laws and inappropriate disclosure rules, the SEC is harming the very citizens it aims to protect.”
If the SEC’s alleged overreach goes unchecked, they say, the agency could suddenly decide that collectible Nike sneakers are also securities and Americans won’t be able to sell their shoes without registering as dealers.
The SEC has not officially responded to the lawsuit, but the agency’s top officials have previously addressed the plaintiffs’ argument that the SEC is not authorized to regulate cryptocurrencies as securities because the statutes that empower the agency do not specifically mention digital investment tools.
Speaking at a conference on financial regulation earlier this year, former SEC enforcement director Gurbir Grewal said the Supreme Court had set a flexible definition of what constitutes a security and that “whether something is a security depends on the object of the transaction, not its name, not its nature, and not its underlying technology.”
He added that “The current turmoil in the crypto markets is negatively impacting Americans every day… [and] The SEC has also alleged in many of our actions that certain unregistered crypto offerings are nothing more than outright rip-offs, Ponzi schemes, affiliate fraud, or other forms of fraud. “
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