Crypto Industry Groups Sue SEC Over Expanded ‘Dealer’ Definition
The U.S. Securities and Exchange Commission (SEC) is now the target of a lawsuit brought by the Texas Crypto Freedom Alliance and the Blockchain Association.
The lawsuit alleges that the agency’s recently expanded definition of a “dealer” has overreached and could potentially capture individuals who are merely trading in cryptocurrencies.
Key points:
- The SEC adopted a widened definition of a “dealer” in February after a 3-2 vote.
- According to the lawsuit, the SEC failed to sufficiently respond to comments made during the rule’s public comment period.
- The plaintiffs are asking the court to declare the rule “arbitrary, capricious, or otherwise contrary to the law.”
- The Blockchain Association CEO stated that the rule is the latest example of the SEC’s attempts to unlawfully regulate outside its authority.
- The lawsuit also addresses the lack of clarity regarding the definition of security and how it applies to digital assets.
According to the lawsuit, the SEC’s expanded definition of a “dealer” could potentially encompass a wide range of digital asset market participants. This could also include users who only participate in digital asset liquidity pools.Â
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SEC initially considered excluding crypto
In adopting the new rule, the SEC considered excluding crypto or certain aspects of the crypto industry. However, the agency ultimately decided against it, stating that doing so might give crypto dealers an unfair advantage over their traditional financial counterparts.
Kristin Smith, CEO of the Blockchain Association, released a statement describing the rule as “the latest example of the SEC’s blatant attempts to unlawfully regulate outside its authority, skirting legal obligations to address the numerous concerns received during its compressed comment period.”
Smith added that the rule advances the SEC’s “anti-digital asset crusade” and unlawfully redefines the boundaries of its statutory authority granted by Congress.
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The lawsuit also addresses another common complaint within the crypto industry. That is the lack of clarity regarding the definition of security and how it applies to digital assets.
The plaintiffs argue that the SEC has never definitively stated which types of digital asset transactions it believes are securities transactions, causing significant uncertainty for the industry. Instead, the agency has taken an ad hoc approach to categorizing specific digital assets as securities.
