30s Summary

A US District Court in Texas has ordered the Securities and Exchange Commission (SEC) to toss out a rule that was intended for dealers, saying it encroached excessively into the cryptocurrency industry. The ruling coincides with the resignation of SEC Chair Gary Gensler, who was seen as expanding the agency’s power over crypto firms. The definition broadening had prompted a lawsuit from the Blockchain Association and the Crypto Freedom Alliance of Texas. Gensler’s rule change was seen as ambiguous and potentially detrimental to decentralized finance.

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In simple terms, a U.S. court in Texas has told the Securities and Exchange Commission (SEC) to toss out one of its rules. The rule in question was meant to be applied to dealers and was set in stone back in February. The legal groups belonging to the crypto industry had a problem with this, saying the SEC was stretching itself too far into their sector.

This event came out at the same time Gary Gensler, the head of the SEC, was announcing his resignation. Gary had been pretty vocal about his successes legally against the crypto industry.

A fancy rule by the SEC was shot down by a Texas federal court. This rule had widened the meaning of “securities dealer” which arrived at many companies including those in the crypto scene. The effect of this decision was a big kick in the pants for the partly crypto-related legacy of Gary Gensler, the SEC Chair, who just announced he’ll be stepping down next January.

Responding to a lawsuit by two industry lobby groups – the Blockchain Association and the Crypto Freedom Alliance of Texas – a U.S. District Court judge in Texas made an early judgment. In it, he criticized the SEC for extending their influence beyond their remit and ordered that this particular rule should be thrown out.

“The court concludes that the SEC exceeded its statutory authority by enacting such a broad definition of dealer untethered from the text, history, and structure of the Exchange Act,” says the Texas judge Reed O’Connor.

In the past, Judge O’Connor had to deal with a similar case involving Consensys and the SEC. His judgment on this case was emphatic. “No part of the final rule approved in February can stand,” he ordered. The SEC, however, is currently reviewing the decision and is expected to decide on its next steps soon.

This rule was one of many that had been worked on during the reign of the SEC’s Chair Gensler, some of which were seen as a power grab by the SEC over crypto firms. Essentially, the rule widened the definition of “dealer” in such a way that it included crypto operations. The people in the industry beleived this was dangerously vague and could put impossible demands on decentralized finance (DeFi) possibly impacting crypto traders who didn’t provide any dealer services.

Both the Blockchain Association and the Texas group filed a lawsuit immediately, leading to this decision from the court. It’s a significant win against the SEC especially since its chairman has been celebrating its many victories against the crypto in recent speeches.

In his resignation announcement, Gensler said, “Court after court agreed with the Commission’s actions to protect investors and rejected all arguments that the SEC cannot enforce the law when securities are being offered — whatever their form.”

CEO of the Blockchain Association, Kristin Smith, celebrated Thursday’s ruling as a victory for the entire industry. “The dealer rule was an attempt by the SEC to advance the agency’s anti-crypto crusade, unlawfully redefining the boundaries of its statutory authority granted by Congress,” she said in a statement. “Following today’s ruling, the agency’s overreach is rolled back and the digital asset industry is protected from this unlawful rule.”