18 States Sue US SEC on Crypto Market Overreach

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As a seasoned analyst with over two decades of experience in financial markets and regulatory policy, I find myself deeply intrigued by this ongoing legal battle between the SEC, its Chair Gary Gensler, and 18 state attorneys general.

Thursday saw eighteen U.S. states filing a lawsuit against SEC Chairman Gary Gensler, the SEC itself, and other commissioners, alleging that their actions in the $3 trillion cryptocurrency market constitute an unconstitutional overreach.

18 Republican attorneys general, including Kentucky’s own Attorney General Russell Coleman, have collectively submitted a lawsuit in a Kentucky district court. This legal action was jointly initiated with the DeFi Education Fund, a cryptocurrency advocacy group that is pushing for responsible regulatory guidelines within the Decentralized Finance (DeFi) industry.

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 a researcher examining the crypto landscape, I’ve noted that according to Chair Gary Gensler’s assertion at the Securities and Exchange Commission (SEC), most cryptocurrencies, with bitcoin and ether being exceptions, fall under the SEC’s regulatory purview as securities. This stance has resulted in the SEC’s enforcement division initiating several legal actions against key players in the industry, such as Coinbase, Kraken, Ripple, and Consensys, for allegedly selling unregistered securities.

There’s been a strong pushback against Gensler’s position from the cryptocurrency sector, as 18 state attorneys general and various congressional representatives claim that his actions are exceeding the Securities and Exchange Commission’s regulatory jurisdiction.

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

At the 56th Annual Institute on Securities Regulation conference held by the Practicing Law Institute on a Thursday, SEC Chairman Gary Gensler stood firm in defense of his regulatory measures towards the cryptocurrency sector. He emphasized:

Over and over again, courts have sided with us in safeguarding investors’ interests and dismissed any claims that the Securities and Exchange Commission (SEC) lacks authority to uphold the law during the offering of securities, regardless of their shape or form.

On the other hand, the legal action taken against the SEC and Gensler highlights that they’ve been imposing limitations and penalties on cryptocurrency platforms without a well-defined regulatory structure in place. Consequently, they argue that the SEC’s actions have introduced substantial risks to one of America’s rapidly expanding economic sectors.

The Attorneys General assert that Congress intentionally withheld extensive regulatory power over digital assets from federal bodies such as the SEC, preferring to let states handle the matter instead. Yet, they claim that the SEC has failed to respect this balance of authority.

In an unfavorable move, the SEC is trying to force digital assets into regulations and disclosure systems that don’t fit well, which may actually hurt the public they aim to safeguard. This action could push aside state laws specifically crafted to maintain consumer protection in the digital asset sector, laws that are more suitable for this industry,” the lawsuit states.

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2024-11-15 12:36