Republican attorneys general from more than a dozen states have filed a lawsuit against the Securities and Exchange Commission alleging that the agency has exceeded its authority by seeking to regulate cryptocurrencies.
The lawsuit is the latest sign of the crypto industry’s growing political influence. President-Elect Donald Trump has promised to make the U.S. the “crypto capital of the planet” and to fire SEC Chair Gary Gensler. The industry poured more than $135 million into federal campaigns during the last election, with overwhelming success.
The plaintiffs in the suit against the SEC include the attorneys general from Kentucky, Nebraska, Tennessee, West Virginia, Iowa, Texas, Mississippi, Montana, Arkansas, Ohio, Kansas, Missouri, Indiana, Utah, Louisiana, South Crolina, Oklahoma, and Florida. They are also joined by the DeFi Education Fund, an advocacy group backed by wealthy crypto investors.
They allege that the SEC’s enforcement actions and classifications of crypto currencies as investment contracts goes beyond the agency’s statutory authority and “defies basic principles of federalism and separation of powers.” Instead, crypto regulation should be left up to the states, the plaintiffs argue.
“The SEC’s assertion of sweeping jurisdiction without congressional authorization deprives States of their proper sovereign role and chills the development of innovative regulatory frameworks for the digital asset industry,” according to the complaint. “Still worse, by attempting to shoehorn digital assets into ill-fitting federal securities laws and inapt disclosure regimes, the SEC is harming the very citizens it purports to protect.”
If the SEC’s alleged overreach isn’t reined in, they say, the agency might suddenly decide that collectable Nike sneakers are also securities and Americans wouldn’t be able to sell their own shoes without registering as brokers.
The SEC hasn’t yet formally responded to the lawsuit, but top agency officials have previously addressed the plaintiffs’ argument that the SEC isn’t authorized to regulate cryptocurrencies as securities because the statutes empowering the agency don’t explicitly mention digital investment instruments.
Speaking at a symposiom on financial regulation earlier this year, then-director of the SEC’s enforcement division Gurbir Grewal said the Supreme Court has previously set a flexibile definition for what constitutes a security and that “whether something is a security depends on the substance of the transaction, not its name, not its form, and not its underlying technology.”
He added that “The current turmoil in the crypto markets is taking a real toll on everyday Americans … [and] the SEC has also alleged in a number of our actions that certain unregistered crypto offerings are nothing but straight rips, Ponzi schemes, affinity frauds, or other types of scams.”
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