Crypto Advocates Challenge SEC Over ‘Dealer’ Definition in Landmark Lawsuit

The Blockchain Association and the Crypto Freedom Alliance of Texas have launched a decisive legal campaign against the U.S. Securities and Exchange Commission (SEC), challenging a recent rule change that has sent shockwaves through the cryptocurrency industry.

At the core of their grievance is the SEC’s adoption of a new rule earlier this year, expanding federal securities laws to include market participants deemed to play significant liquidity-providing roles in cryptocurrency transactions. This move, the groups argue, unfairly targets and stifles innovation in the burgeoning crypto sector.

The lawsuit, filed on Monday in a Texas district court, invokes the Administrative Procedures Act (APA), alleging that the SEC's rulemaking process was flawed and failed to adequately consider the impact on the digital assets industry.

Kristin Smith, CEO of the Blockchain Association, expressed firm resolve: “Before more harm can be done by this overzealous regulator, we are seeking declaratory judgment and injunctive relief against the SEC to overturn their rule expansion and safeguard our industry.”

The contentious SEC rule extends to crypto assets that meet the criteria of securities or government securities, with some exceptions for assets valued under $50 million, including decentralized finance (DeFi) products.

Today, BA and CFAT filed a suit against the SEC asking the court to strike down their arbitrarily applied and unclear Dealer Rule expansion. This rule stifles innovation, harms the burgeoning digital asset industry, and emboldens the SEC to lead by unwritten rules and guidance.… pic.twitter.com/3xIMJIAwyP

— Blockchain Association (@BlockchainAssn) April 23, 2024

The complaint highlights industry discontent, accusing the SEC of refusing to exempt the digital assets industry or provide clear guidance on the application of the rule to novel markets.

This legal challenge underscores growing tensions between regulators and the crypto community, reflecting broader debates over the appropriate regulatory framework for digital assets. As the lawsuit unfolds, the outcome will not only impact market participants but could shape the trajectory of crypto regulation in the United States for years to come.

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