SEC Sued by Crypto Industry Groups Over Definition of ‘Dealer’ in Securities

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Ruholamin Haqshanas

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Ruholamin Haqshanas

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Ruholamin Haqshanas is a contributing crypto writer for CryptoNews. He is a crypto and finance journalist with over four years of experience. Ruholamin has been featured in several high-profile crypto...

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April 23, 2024

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The Blockchain Association and the Crypto Freedom Alliance of Texas (CFAT) have taken legal action against the United States Securities and Exchange Commission (SEC), filing a lawsuit in the Northern District of Texas. The lawsuit aims to challenge the SEC’s recent expansion of the “Dealer Rule,” which the industry groups argue is stifling innovation in the U.S. digital asset market.The BA and CFAT assert that the SEC exceeded its authority by implementing a broad interpretation of the term “dealer” within the Securities Exchange Act of 1934. 

SEC Adopts New Rules to Redefine “Dealer”

In February, the SEC adopted new rules that redefine “dealer” and “government securities dealer.”As a result, more participants in the crypto market are required to register, join a self-regulatory organization, and comply with federal securities laws.According to the lawsuit, this expansion creates a vague and burdensome regulatory environment for businesses involved in digital asset trading. The plaintiffs allege that the SEC failed to adequately address public concerns raised during the limited comment period and neglected to assess the potential negative impacts of the rule.Kristin Smith, CEO of the Blockchain Association, criticized the SEC for attempting to regulate outside its authority, stating that the Dealer Rule is part of the SEC’s “anti-digital asset crusade.” She believes that the rule unlawfully redefines the boundaries of the SEC’s statutory authority granted by Congress, which could drive U.S. companies offshore and instill fear in American innovators.The lawsuit seeks a court order to overturn the expansion of the Dealer Rule based on violations of the Administrative Procedure Act (APA). The APA ensures fair and transparent rulemaking by requiring agencies to consider public feedback and provide clear guidelines.Smith emphasized that they are seeking “declaratory judgment and injunctive relief” against the regulators in order to overturn the expansion of the rule. Their ultimate goal is to prohibit its use against the industry, preventing further harm caused by what they perceive as an overreaching regulator.The Blockchain Association and the Crypto Freedom Alliance of Texas represent a significant portion of the cryptocurrency industry, including leading investors, companies, and projects. Their collective efforts advocate for a national policy framework within the U.S. that fosters local innovation and responsible development in the digital asset space.

SEC Wages War Against Crypto Companies

Over the past year, the SEC has filed numerous lawsuits against crypto firms, with SEC Chair Gary Gensler consistently asserting that most cryptocurrencies should be classified as securities.For one, the agency initiated a civil case against Sam Bankman-Fried, co-founder of FTX. In addition to the case against Bankman-Fried, the SEC filed lawsuits against other major crypto players, including Binance, its CEO Changpeng Zhao, and Coinbase.Many industry players and advocacy groups have called on the SEC to establish clear regulatory guidelines to foster innovation within the United States.The SEC has reportedly issued subpoenas as part of its campaign to potentially classify Ethereum (ETH) as a security under its regulatory purview. “[T]here still are those who would like to whittle away at the SEC’s disclosure regime,” said the SEC chair.