Eighteen Republican attorneys general are suing the Securities and Exchange Commission and its commissioners for allegedly exceeding agency authority with its enforcement actions against the cryptocurrency industry.
The attorneys general filed a lawsuit in the Eastern District of Kentucky, Frankfurt Division, alleging the SEC “sought to unilaterally wrest regulatory authority away from the States” through such enforcement actions.
“Instead of respecting that constitutional balance of power, and allowing States to develop and enforce their own tailored digital asset regulations based on their own policy priorities (furthering their constitutional role as laboratories of democracy), the SEC’s assertion of sweeping jurisdiction without congressional authorization deprives States of their proper sovereign role and chills the development of innovative regulatory frameworks for the digital asset industry,” the attorneys general, led by Kentucky’s Russell Coleman, allege.
“Still worse, by attempting to shoehorn digital assets into ill-fitting federal securities laws and inapt disclosure regimes, the SEC is harming the very citizens it purports to protect, by displacing better-suited state laws that have been carefully designed to ensure consumer protection in the digital asset industry,” they wrote.
The attorneys general allege that by regulating by enforcement – not writing official crypto-specific rules, but filing enforcement actions against crypto firms based on existing laws – the SEC “flouts” the Administrative Procedure Act.
“‘Circumvent[ing]’ those required ‘procedures’ and ‘prospectively pronounc[ing] a broad, generally applicable requirement’ outside of rulemaking constitutes ‘an abuse of discretion,’” the attorneys general wrote, referring to prior rulings.
The SEC has hit several crypto firms with enforcement actions in recent years while under the chairmanship of Gary Gensler, who posited last year that the crypto industry is full of hucksters, fraudsters and scam artists.
Some firms, like Crypto.com, have sued the commission in response to its regulatory actions. Crypto.com contended last month that the regulator “unilaterally expanded its jurisdiction beyond statutory limits.”
Despite Gensler’s purported anti-crypto stance, two SEC commissioners – Hester Peirce and Mark Uyeda – have garnered a perception of being pro-crypto.
At industry conference Money20/20 last year, Peirce questioned whether the SEC’s fight against crypto is the best use of its resources, noting that there’s “a lot of really interesting work being done” in the crypto space, and that it’s “important for us to not paint with such a broad brush to just say it’s all bad, but to look for ways that we can work with what’s going on in crypto to pull the good out and push the bad under.”
Uyeda told Fox Business last week that the commission’s “war on crypto must end, including crypto enforcement actions solely based on a failure to register with no allegation of fraud or harm.”
Both commissioners were named as defendants in the lawsuit, though, alongside Gensler and commissioners Caroline Crenshaw and Jaime Lizárraga.
“We are fighting to keep the federal government from reaching into Kentuckians’ wallets – both physical & digital,” Coleman posted Thursday on X. “The Biden-Harris Administration is unlawfully cracking down on cryptocurrency & along with other AG’s we have filed a lawsuit to stop that.”
President-elect Donald Trump said in July that, should he be elected again, he would fire Gensler “on Day One” of his presidential term. “I will appoint a new SEC chairman who believes that America should build the future, not block the future,” Trump said.
Trump has emerged as an industry ally, despite previously speaking out against it. He and his sons launched their own crypto firm, World Liberty Financial, in September.
The SEC did not respond to a request for comment.
