Eighteen States Sue SEC Over Digital Asset Regulation

Eighteen Republican attorneys general have filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) in the U.S. District Court for the Eastern District of Kentucky. They accuse the SEC of exceeding its authority to regulate digital assets at the state level.

Key Details

• States Involved: Kentucky, Nebraska, Tennessee, West Virginia, Iowa, Texas, Mississippi, Montana, Arkansas, Kansas, Missouri, Indiana, Utah, Louisiana, South Carolina, Oklahoma, and Florida.
• Plaintiffs: Attorneys General from the aforementioned states and the DeFi Education Fund.
• Aim: The lawsuit seeks a declaration that "a digital asset transaction is not an investment contract" and aims to prevent the SEC from enforcing charges against digital asset platforms for failing to register as securities exchanges.

Background

The lawsuit comes as the cryptocurrency market experiences a rally, partially spurred by the re-election campaign of former President Donald Trump, who has positioned himself as an ally to the crypto industry. Many believe that a Trump administration could reduce stringent regulations imposed during President Biden's term.

Legal Arguments

The complaint argues that states have developed their own regulatory frameworks for cryptocurrency, fostering industry growth. It criticizes the SEC for its enforcement actions, stating that they lack Congressional authorization and disrupt the authority of state regulators.

The lawsuit also references the Howey Test, a legal standard for determining investment contracts. The attorneys general argue that the SEC's application of this test misinterprets the distinction between assets and obligations.

SEC Response

An SEC spokesperson declined to comment specifically on this case but affirmed the agency's commitment to working with state securities regulators to combat misconduct in the crypto markets.

Update: As of Nov. 14, 10:45 p.m. UTC, the SEC's response was included in the report.