18 Republican states have sued the US SEC and its commissioners, arguing that the agency overstepped its constitutional limits and unfairly targeted the crypto industry under Chair Gary Gensler’s leadership.
It accuses the agency of government overreach due to its aggressive enforcement against the $3 trillion industry, Fox Business reported Thursday. This, the lawsuit claims, infringes on the states’ rights to manage their economic policies.
Further, the lawsuit claims that the regulator targeted US crypto firms, asserting this action is unconstitutional as it infringes on the core tenets of federalism. These principles are designed to keep government agencies within their defined constitutional boundaries.
The DeFi Education Fund, an advocate for effective policy in DeFi, partnered to file the complaint.
SEC’s Ruling-by-Enforcement Strategy Under Biden Faces Criticism
Under the Joe Biden administration, the SEC has used a ruling-by-enforcement approach for crypto regulation. This means that rather than creating specific rules for cryptocurrencies, the SEC applies existing securities laws through enforcement actions against crypto companies and individuals.
This strategy involves case-by-case legal actions to enforce compliance with securities laws, often without clear guidelines for digital assets. As a result, critics argue that it creates regulatory uncertainty, stifles innovation and confuses compliance.
Gensler has stressed that crypto platforms must register with the SEC, like traditional exchanges, to protect investors from risks such as fraud and market manipulation.
On Thursday, he defended his actions against the industry during a speech at the Practicing Law Institute’s 56th Annual Institute on Securities Regulation conference.
“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,” he said.
Trump Vows to Remove Gensler as SEC Head
Meanwhile, President-elect Donald Trump has pledged to remove Gensler from his SEC role on the very first day he returns to the presidency.
The AGs point out that Congress deliberately withheld extensive regulatory power over digital assets from federal entities like the SEC, preferring state governance. However, the SEC has actively disregarded this division of authority, according to the AGs, attacking the US crypto sector.
With the impending change in SEC leadership due to the new administration, the future trajectory of this lawsuit remains uncertain.
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