A lawsuit filed by 18 US states challenges the Securities and Exchange Commission (SEC). The states accuse the agency of attempting to abuse its authority to regulate cryptocurrencies and argue that they, not the SEC, should be responsible for handling cryptocurrency regulation. The DeFi Education Fund, an advocacy group focused on decentralized finance, is joining the lawsuit as a plaintiff.
States seek control over crypto regulation
The lawsuit alleges that the SEC is attempting to “unilaterally remove regulatory authority from states” by imposing federal oversight of digital assets. States aim to end SEC enforcement actions and establish frameworks to manage cryptocurrency markets. The legal decision speaks to growing frustration among state leaders over federal intervention in the rapidly evolving crypto space.
Key figures in the lawsuit include SEC Chairman Gary Gensler, whose handling of cryptocurrency regulation has drawn sharp criticism from the industry and political figures, including Republican President-elect Donald Trump. Gensler’s tenure at the SEC was marked by aggressive enforcement actions against crypto companies, earning him a polarizing reputation.
For years, the regulatory tug of war over cryptocurrencies has primarily involved the SEC and the Commodity Futures Trading Commission (CFTC), with the latter often favored by the crypto industry. However, this new lawsuit led by Kentucky Attorney General Russell Coleman introduces a new dynamic, with states collectively entering the fray to assert their role in shaping crypto policies.
Crypto Regulations and Legal Disputes
Under Gensler’s leadership, the SEC has achieved several victories in its campaign against the crypto industry. Federal courts have repeatedly upheld the SEC’s authority to regulate digital assets under existing securities laws. However, the lawsuit filed by the 18 states challenges this interpretation, arguing that “the sweeping assertion of the SEC’s regulatory jurisdiction is untenable.” The digital assets involved here are assets, not investment contracts covered by the federal securities laws.
The legal battle comes amid broader challenges for the industry, including the SEC’s high-profile lawsuit against Coinbase, a major cryptocurrency exchange. Coinbase argued that its platform did not involve trading securities and requested the case be dismissed. U.S. District Judge Katherine Polk Failla ruled against Coinbase, saying the transactions at issue conformed to long-standing legal definitions of securities.
The trial’s invocation of the major issues doctrine adds to the complexity. This legal principle suggests that regulatory measures with significant economic or political implications should receive explicit approval from Congress. The states argue that the SEC’s actions against the crypto industry require such authorization. However, courts have rejected similar arguments in recent cases involving Terraform Labs and Coinbase, suggesting that this reasoning may face significant obstacles.
The road to follow
As the debate over cryptocurrency regulation continues, this lawsuit highlights tensions between state and federal authorities in the United States. With states now actively challenging the SEC’s jurisdiction, this case could set a crucial precedent in how digital assets are governed. The crypto industry remains caught in the crossfire of an escalating regulatory battle.
