Exclusive: The legal woes are mounting for Wall Street’s top cop.
On Thursday afternoon, 18 states filed to sue the Securities and Exchange Commission and its five commissioners accusing them of unconstitutional overreach and unfair persecution of the $3 trillion cryptocurrency industry under the leadership of agency chief Gary Gensler, FOX Business has learned.
The lawsuit was jointly filed in a Kentucky district court by 18 Republican attorneys general from Kentucky, Nebraska, Tennessee, West Virginia, Iowa, Texas, Mississippi, Montana, Arkansas, Ohio, Kansas, Missouri, Indiana, Utah, Louisiana, South Carolina, Oklahoma and Florida. The complaint was filed in collaboration with crypto advocacy group DeFi Education Fund, which advocates for sound policy in the decentralized finance space.
Notably, the lawsuit alleges that the agency’s industry-wide crackdown on U.S. crypto companies violates fundamental principles of federalism which ensure that government agencies operate within their constitutionally defined roles. Gensler has said that the majority of cryptocurrencies, aside from bitcoin and ether, are securities and fall under the SEC’s purview. But the industry, its legal advocates and many members of Congress believe Gensler is overstepping the mark and that at least some cryptocurrencies are commodities that fall under the watch of the SEC’s sister agency, the Commodity Futures Trading Commission.
Given the lack of clear rules and a clear regulating body, the industry has been operating in somewhat of a regulatory void while simultaneously being targeted by the SEC.
The SEC had no immediate comment.
The eighteen state AG’s state argue that by imposing penalties and restrictions on digital asset platforms without proper regulatory frameworks, the SEC’s actions have introduced “significant risks” to one of America’s fastest-growing economic sectors. This approach, they claim, stifles innovation, disrupts the financial industry, and displaces state-led regulatory efforts better suited to protecting consumers and fostering economic growth.
The SEC’s approach to regulating digital assets sparked a nationwide effort by the industry to make digital assets part of the 2024 election.
“Last week, the American people went to the polls and soundly rejected the weaponization of the federal government,” said Kentucky Attorney General Russell Coleman. “The Biden-Harris Administration’s unlawful crypto crackdown has targeted the tens of millions of ordinary people who are taking part in this vibrant digital market. Along with conservative AGs across the country, we’re filing this challenge to cut the bureaucracy down to size.”
The lawsuit says that the SEC’s actions infringe on states’ rights to regulate their own economies. In their complaint, the plaintiff states argue that the SEC’s regulatory overreach is unconstitutional, citing principles of federalism and the separation of powers.
“At bottom, the SEC’s regulatory overreach defies basic principles of federalism and separation of powers… 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 filing states. “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.”
