Two prominent crypto industry groups, the Blockchain Association and the Crypto Freedom Alliance (CFAT) of Texas, have filed a lawsuit against the US Securities and Exchange Commission (SEC) to contest a newly implemented rule expanding the definition of a “dealer” in securities.
The complaint, lodged in a federal court in Texas, alleges that the SEC exceeded its authority and approved an arbitrary and capricious rule.
Crypto Industry Takes Legal Action Against SEC
In the lawsuit, the crypto firms argue that the new rule is “vague, overly broad” and fails to provide clarity on its implications for crypto market participants.
In particular, under the SEC rule, developers of automated software and liquidity providers for certain trading protocols could fall within the definition of “dealer,” resulting in increased costs and additional regulatory requirements.
The complaint further contends that the SEC’s implementation of the Dealer Rule violates the Administrative Procedure Act (APA), preventing industry participants from operating under clearly communicated rules established through a fair and transparent rulemaking process.
According to the complaint, the SEC’s interpretation of the term “dealer” as outlined in the Securities Exchange Act of 1934 is an “unlawful and radical expansion” that departs from its longstanding and “well-established meaning.”
The complaint also emphasizes that the rule will cause “irreparable harm” to the millions of Americans and businesses involved in digital asset trading. The two crypto firms also cite the SEC’s refusal to adequately address concerns raised during the comment period and failure to assess the costs and benefits of its approach as violations of the APA.
CEO Slams SEC’s Regulatory Overreach
Blockchain Association CEO Kristin Smith criticized the SEC’s regulatory overreach and failure to address industry concerns in a compressed comment period. Smith stated:
The Dealer Rule advances the SEC’s anti-digital asset crusade and unlawfully redefines the boundaries of its statutory authority granted by Congress. It threatens to drive US companies offshore and incite fear in American innovators.
Smith emphasized the Blockchain Association and the Crypto Freedom Alliance of Texas’s commitment to protecting the American digital asset ecosystem.
Ultimately, the lawsuit seeks declaratory judgment and injunctive relief to overturn the SEC’s rule expansion and prevent its application within the industry.
The legal battle between crypto industry groups and the SEC highlights the ongoing struggle to establish a clear regulatory framework for the emerging digital asset market.
As the case unfolds, its outcome could have significant implications for the industry’s future and the balance between regulatory oversight and innovation in the United States.
Featured image from Shutterstock, chart from TradingView.com