18 States Sue SEC for “Untenable” Crypto Enforcement Actions

• Eighteen state attorney generals want to prevent the SEC from going after crypto firms.
• The attorney generals argue that the SEC’s crypto enforcement efforts go beyond the scope of the law.
• The impending showdown comes despite several factors indicating that the current SEC regime is coming to an end.

Under the Gary Gensler -led administration, the U.S. SEC has ramped up its efforts to assume oversight over the nascent crypto market as the agency’s chief maintains that most crypto assets are unregistered securities that should be subject to decades-old securities laws.

However, these efforts have continually received pushback from the industry, which now appears to have a new champion or 18.

State AGs Call SEC Handling of Crypto into Question

Eighteen state attorney generals want to prevent the SEC from going after crypto firms. These include attorneys general from the Commonwealth of Kentucky, the State of Nebraska, the State of Tennessee, the State of West Virginia, the State of Iowa, the State of Texas, the State of Mississippi, the State of Montana, the State of Arkansas, the State of Ohio, the State of Kansas, the State of Missouri, the State of Indiana, the State of Utah, the State of Louisiana, the State of South Carolina, the State of Oklahoma, and the State of Florida.

On Thursday, November 14, these state attorney generals and a crypto advocacy group, the DeFi Education Fund, filed a lawsuit against the SEC, its chair Gary Gensler, and its four other commissioners. The lawsuit accused the agency of overreaching in its crypto enforcement actions and further argued that the SEC’s actions interfered with state laws.

"The SEC's sweeping assertion of regulatory jurisdiction is untenable," the attorney generals wrote in the complaint, adding, "the SEC does not have expansive power to regulate any and all transactions involving such digital assets as securities transactions."

Commenting on the complaint , Kentucky Attorney General Russell Coleman, who led the filing, bashed the SEC’s crypto crackdown as unlawful.

"We are fighting to keep the federal government from reaching into Kentuckians' wallets- both physical & digital.  The Biden-Harris Administration is unlawfully cracking down on cryptocurrency & along with other AG's we have filed a lawsuit to stop that," he wrote.

The lawsuit asks the court to declare that crypto transactions do not constitute securities and also enter an order preventing the SEC from taking actions against crypto firms for “the failure of digital asset platforms facilitating such secondary transactions to register.”

The impending legal showdown comes despite or perhaps emboldened by the fact that the current SEC regime appears to be on its way out as DC looks to take a more pro-crypto outlook in the next four years.

Gensler Ready to Bow Out?

In recent weeks, Gary Gensler’s position as chair of the SEC has come under question , especially after Donald Trump’s victory at the polls. The president-elect had promised to fire Gensler on his first day in office.

Amid the speculation, Gensler may be set to hang up his shield himself. In a speech at a securities education summit on Thursday, November 14, the SEC chair appeared to signal resignation plans as he spoke reflectively of his time at the agency’s helm.

“It’s been a great honor to serve with them [SEC staff], doing the people’s work and ensuring that our capital markets remain the best in the world,” he declared in what some have described as a farewell note.

On the Flipside 

• Despite the growing political opposition, the SEC is not slowing its crypto enforcement campaign. The agency recently sent a Wells notice to the popular crypto gaming project Immutable.
• The current SEC regime appears to be on its way out.

Why This Matters

The recent lawsuit further highlights the growing opposition to the SEC’s approach to crypto regulation and the industry’s growing political influence in the U.S.

Read this for more on the SEC and crypto:
SEC Widens Enforcement Net to Crypto Gaming as Immutable Discloses Notice

Find out why Bitwise CIO Matt Hougan believes the Bitcoin bull run is still early:
Bitwise CIO on Bitcoin’s Blistering Run: “We’re Still Early”