18 State AGs and DeFi Education Fund File Lawsuit Against SEC for Digital Asset Regulation Approach
A team of 18 State Attorneys General, led by Utah AG Sean Reyes, filed a lawsuit against the SEC and Chair Gary Gensler on November 14, 2024. The DeFi Education Fund, a nonprofit organization, also joined the legal action. The lawsuit challenges the SEC’s regulatory approach to digital assets, claiming it exceeds authority and infringes on state sovereignty.
The plaintiffs argue that the SEC has extended its regulatory reach too far into the digital asset industry. They dispute the SEC’s classification of most digital asset transactions as “investment contracts,” subjecting them to SEC regulation. The states believe this interpretation goes beyond the SEC’s legal power. They argue that typical digital assets do not meet the requirements of investment contracts because there’s no ongoing relationship between the buyer and the issuer, and the issuer has no obligation to manage the asset for the buyer.
The lawsuit makes additional claims, stating that the SEC’s policy was enacted without the required rulemaking process, violating the Administrative Procedure Act. The states also invoke the major questions doctrine, suggesting that Congress should authorize the SEC’s authority over digital assets due to the economic and political significance of the matter.
The plaintiffs seek declaratory and injunctive relief to halt the SEC’s enforcement actions against digital asset platforms under its current regulatory approach. They want the court to declare that digital asset transactions, without an ongoing contractual relationship, should not be considered investment contracts. They argue that platforms facilitating these transactions should not have to register as securities exchanges, dealers, brokers, or clearing agencies.
This lawsuit poses a significant challenge to the SEC’s digital asset regulatory approach and highlights the states’ dedication to advancing digital asset technology. It also emphasizes that Republicans are likely to continue influencing the regulatory landscape for digital assets in the future.
