Crypto Firm, Industry Group Sues US SEC for ‘Overreach’ on Digital Assets

A Texas-based cryptocurrency company and an industry group filed the lawsuit. US Securities and Exchange Commission on Wednesday, saying the regulator had overstepped its authority and asked a judge to rule that digital assets traded on exchanges are not securities.

Fort Worth based crypto company Legilex And the lobbying group Crypto Freedom Alliance of Texas (CFAT) claims the SEC has asserted jurisdiction over the industry without a “clear statutory mandate.”

Lejilex says it tries to run a cryptocurrency platform called Legit.Exchange. The company, formed last year, said it plans to list digital assets that are considered securities in a lawsuit against the SEC. Coin baseThe largest cryptocurrency exchange in the US, and Binancethe world’s largest crypto exchange.

Legalex wants the court to rule that listing pre-existing tokens will not violate securities laws.

“We wish we were starting our own business instead of filing a lawsuit, but here we are,” Lejilex co-founder Mike Wawszczak said in a statement.

An SEC spokesman did not immediately respond to a request for comment.

Both Coinbase and Binance have denied the SEC’s allegations.

CFAT asked the court to bar the SEC from suing its members, saying the agency’s claim to jurisdiction over digital assets has made it difficult to convince Texas lawmakers to adopt “sensible policies.” .

The group launched last year and counts Coinbase and venture capital firm Andreessen Horowitz’s a16z crypto fund as members.

CFAT and Lejilex argue that the SEC’s classification of digital assets as “investment contracts” is incorrect because they create no ongoing commitment between the creator and the purchaser.

They also asked the court to apply the “big questions” doctrine, which allows judges to invalidate executive agency actions of “broad economic and political significance” unless Congress expressly authorizes them.

The once-rare doctrine has gained traction among regulatory opponents, as the conservative-leaning U.S. Supreme Court has applied it in a handful of recent cases.

Crypto companies fighting SEC enforcement actions, including Coinbase and Binance, have made similar arguments in other cases, so far without success.

A judge in July rejected an argument that the SEC’s lawsuit against Ripple Labs required an ongoing commitment to constitute an asset as a security. Another judge overseeing the regulator’s lawsuit against Terraform Labs found that the “big questions” doctrine does not apply to the cryptocurrency industry. Both cases were brought in New York.

The new lawsuit, filed in federal court in Fort Worth, brings the industry’s fight with the regulator into the jurisdiction of the 5th U.S. Circuit Court of Appeals. More than two-thirds of the judges on the appeals court were appointed by Republican presidents, making the SEC a favorite venue for challenges under the Biden administration.

The case was assigned to Judge Reid O’Connor, a Republican appointee of former President George W. Bush, who has had several cases challenging laws and regulations related to guns, LGBTQ rights and health care. Conservatives had a track record of ruling in favor of litigation.

Paul Clement, former U.S. Solicitor General under President George W. Bush, is representing the plaintiffs.

© Thomson Reuters 2024

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