30s Summary

State attorney generals and the DeFi Education Fund are suing the U.S. Securities and Exchange Commission (SEC) accusing it of overstepping jurisdiction against cryptocurrency exchanges. The lawsuit, filed in Kentucky, aims to halt the SEC from further action, arguing that the commission’s policy regarding cryptocurrencies violates federal laws because they are assets, rather than investment contracts. Gensler, the current SEC head who will soon step down, is regarded as harsh on the industry, heightening expectations for a more industry-friendly successor.

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Some state attorney generals and the DeFi Education Fund have sued the U.S. Securities and Exchange Commission (SEC) as well as its five commissioners. They claim that the organization is overstepping their jurisdiction by taking legal actions against cryptocurrency exchanges. This lawsuit was filed at a court in Kentucky and the aim is to stop the SEC from bringing any enforcement actions. The claimants argue that the SEC’s policy on cryptocurrencies is an “unlawful executive action” and is a violation of the Administrative Procedures Act.

The claimants believe the SEC’s wide claim of regulatory jurisdiction is unfounded as the digital assets in question are simply assets and not investment contracts covered by federal securities laws.

This issue is coming up just as the chair of the SEC, Gary Gensler, who was appointed under President Biden, is on his way out. Donald Trump, who is expected to be president again, is expected to nominate a successor who will be more lenient towards the industry.

The lawsuit also states that the SEC is encroaching upon a state’s right to regulate the industry on its own. It mentions the major questions doctrine – a Supreme Court guideline which stipulates that federal agencies shouldn’t decide on issues that Congress has not directly delegated to them. Some federal courts have rejected the application of this doctrine in SEC lawsuits against crypto companies.

The CEO of DEF, Miller Whitehouse-Levine, states that the lawsuit is intended to target the overreach of the SEC. He believes that cryptocurrency and decentralized finance (DeFi) promise a more accessible, efficient, and customer-focused financial services sector, and he sees the SEC as a barrier to this vision.

The SEC has refused to comment on this litigation and has stated that state regulators of securities have been supportive partners in efforts to uncover and prosecute misconduct in crypto markets.

Despite this, blockchain and cryptocurrency still face major regulatory restrictions, with the current SEC head, Gensler, stating that aside from speculative investing and potential use for illicit activities, the vast majority of cryptocurrencies have yet to prove sustainable use cases.