Eighteen US state attorneys general have filed a lawsuit against US SEC Chair Gary Gensler while claiming the SEC’s broader crackdown violates federalism principles.
On Thursday, 18 states in the United States filed to sue SEC Chair Gary Gensler along with the agency and other Commissioners citing ‘unconstitutional overreach’ of the $3 trillion crypto market.
Kentucky Attorney General Russell Coleman along with 17 other Republican attorneys generals have filed the lawsuit in the Kentucky district court. They filed the complaint in collaboration with DeFi Education Fund, a crypto advocacy group that is demanding sound regulatory policy in the DeFi sector.
The lawsuit states that the US SEC’s broader crackdown on the crypto industry violates the fundamental principles of federalism thereby making it absolutely unconstitutional. It also states that government agencies need to operate within their constitutionally defined roles.
As SEC Chair, Gary Gensler has asserted that most cryptocurrencies, excluding bitcoin and ether, are securities under the SEC’s jurisdiction. This led the SEC’s enforcement division to file numerous lawsuits against major industry players like Coinbase, Kraken, Ripple, and Consensys, accusing them of selling unregistered securities.
Gensler’s stance has sparked significant opposition from the crypto industry, wherein 18 state attorneys general and several members of Congress argue that he is overextending the SEC’s regulatory reach.
They added that without clear crypto rules or a designated crypto authority, crypto firms will continue to operate in a “regulatory limbo”.
Gary Gensler Defends His Actions
While speaking at the Practicing Law Institute’s 56th Annual Institute on Securities Regulation conference on Thursday, SEC Chair Gary Gensler defended his actions against the crypto industry. He stressed:
“Court after court has agreed with our actions to protect investors and rejected all arguments that the SEC cannot enforce the law when securities are being offered—whatever their form”.
However, the lawsuit against SEC and Gensler notes that they have been imposing restrictions and penalties on crypto platforms without a proper regulatory framework. Thus, they noted that the SEC’s actions have introduced significant risks to one of America’s fastest-growing economic sectors.
The AGs argue that Congress deliberately chose not to grant broad regulatory authority over digital assets to federal agencies like the SEC, instead allowing states to take the lead on the issue. However, they contend that the SEC has disregarded this division of power.
“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,” the lawsuit reads.
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