The Blockchain Association and the Crypto Freedom Alliance of Texas have taken legal action against the U.S. Securities and Exchange Commission (SEC) regarding a newly enacted dealer rule, which they argue would have detrimental repercussions for the industry.
In a complaint filed on Monday in a Texas district court, both organizations accuse the SEC of violating the Administrative Procedures Act, the legislation governing the development and issuance of rules by federal agencies. Notable members of the Blockchain Association include Coinbase, Digital Currency Group, Uniswap, and Kraken.
The groups seek a court order to nullify the new rule, expressing concerns about the potential harm caused by what they perceive as an overly aggressive regulatory stance. Blockchain Association CEO Kristin Smith emphasized the urgency of the situation, stating that they aim to prevent further damage by challenging the SEC’s expansion of regulatory reach.
The SEC’s recently adopted rules, voted on in February, extend federal securities law compliance requirements to market participants with significant liquidity-providing roles, encompassing the cryptocurrency sector. The comprehensive 247-page rule applies to transactions involving crypto assets meeting the definition of securities or government securities, with the exemption of assets valued at less than $50 million. However, the rule’s inclusion of decentralized finance (DeFi) drew criticism from various crypto industry groups.
According to the Blockchain Association and the Crypto Freedom Alliance of Texas, the SEC overstepped its bounds by defining dealers and disregarding stakeholder feedback on the applicability of the rule to digital assets and DeFi. The complaint alleges that the Commission failed to provide clarity or exemptions for the digital assets industry, prompting confusion among market participants.
The rule is set to become effective on April 29, 2024, with a compliance date one year thereafter.
An SEC spokesperson affirmed the Commission’s commitment to rulemaking within its statutory authority and pledged to vigorously defend the final dealer rules in court.
This lawsuit joins a series of legal actions against the SEC in recent times. The Crypto Freedom Alliance of Texas previously sued the SEC alongside digital asset company LEJILEX in February over what they deemed as the agency’s “unlawful targeting” of the crypto industry. Additionally, the DeFi Education Fund and Texas-based apparel company Beba filed a lawsuit last month, alleging APA violations and seeking a declaration that their $BEBA token airdrop does not constitute a security.
Last year, cryptocurrency exchange Coinbase initiated legal proceedings against the SEC to prompt a definitive response to its rulemaking petition.
