Republican attorneys general from more than a dozen states have filed a lawsuit against the Securities and Exchange Commission, alleging that the agency exceeded its powers in 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 United States the “crypto capital of the world” and fire SEC Chairman Gary Gensler. The industry invested more than $135 million in federal campaigns during the last election, with resounding success.
Plaintiffs in the SEC suit include the attorneys general of 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 classification of cryptocurrencies as investment contracts go beyond the agency’s statutory authority and “defy fundamental principles of federalism and the separation of powers.” Instead, crypto regulation should be left to states, the plaintiffs argue.
“The SEC’s assertion of broad jurisdiction without Congressional authorization deprives states of their sovereign role and hinders the development of innovative regulatory frameworks for the digital assets industry,” according to the complaint. “Even worse, by attempting to fit digital assets into ill-fitting federal securities laws and inadequate disclosure regimes, the SEC is harming the very citizens it claims to protect.
If the SEC’s alleged excesses are left unchecked, they say, the agency could suddenly decide that collectible Nike sneakers are also securities and that Americans would not be able to sell their own shoes without registering as broker.
The SEC has yet to formally respond to the lawsuit, but senior agency officials have already addressed the plaintiffs’ argument that the SEC is not authorized to regulate cryptocurrencies as securities because the statutes empowering the agency do not explicitly mention digital investment instruments.
Speaking at a financial regulation symposium earlier this year, Gurbir Grewal, then director of the SEC’s enforcement division, said the Supreme Court had already establish a flexible definition of what constitutes a security and that “whether something is a security depends on the substance of the transaction, not on its name, nor its form, nor the underlying technology.”
He added that “the current turmoil in the crypto markets is having serious consequences for ordinary Americans… (and) the SEC has also alleged in a number of our actions that some unregistered crypto offerings are nothing other than direct scams, Ponzi schemes, affinity frauds. , or other types of scams.
