(Kitco News) – The re-election of Donald Trump, who is decidedly pro-crypto, has emboldened cryptocurrency proponents to make their displeasure at the way the industry has been treated known as 18 states have filed a lawsuit against the Securities and Exchange Commission (SEC) and Chair Gary Gensler, accusing the financial regulator of “gross government overreach” against the industry.
“The Securities and Exchange Commission (SEC) has not respected this allocation of authority,” the complaint reads. “Instead, without Congressional authorization, the SEC has sought to unilaterally wrest regulatory authority away from the States through an ongoing series of enforcement actions.”
The coalition of states is led by Kentucky Attorney General Russell Coleman and includes support from the republican attorneys general from Nebraska, Tennessee, West Virginia, Iowa, Texas, Mississippi, Montana, Arkansas, Ohio, Kansas, Missouri, Indiana, Utah, Louisiana, South Carolina, Oklahoma and Florida.
The complaint, which was filed in collaboration with crypto advocacy group DeFi Education Fund, called the SEC’s regulatory approach to crypto a “blatant abuse of government power.”
“Instead of encouraging this vibrant new digital industry, the Biden-Harris Administration is unlawfully cracking down on cryptocurrency,” Coleman said.
The lawsuit alleges that the SEC’s crackdown on U.S. crypto companies is unconstitutional because it violates fundamental principles of federalism, which ensure that government agencies operate within their constitutionally defined roles.
It further claimed that the imposition of penalties and restrictions on digital asset platforms, despite no clear regulatory framework, has introduced “significant risks” to one of the fastest-growing economic sectors in the U.S. and has infringed on states’ rights to regulate their own economies.
“At bottom, the SEC's regulatory overreach defies basic principles of federalism and separation of powers... the SEC’s assertion of sweeping jurisdiction without congressional authorization deprives States of their proper sovereign role and chills the development of innovative regulatory frameworks for the digital asset industry,” the filing said.
“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.”
Data from the Blockchain Association shows that the regulator's legal actions have cost the industry $429 million in legal fees since 2021, despite the lack of a regulatory framework by which they should operate. Industry executives have been boisterous in their criticisms of the SEC’s lack of coherent digital asset policy, which they say is the biggest hurdle developers face in the U.S.
Crypto proponents are hoping that Trump’s election will put an end to this and lead to a more friendly environment for digital asset firms wishing to operate in the states.
The President-elect has already announced his intention to remove Gensler from office and replace him with a new chairman more favorable to the sector.
Possible candidates for the next SEC Chair include Mark Uyeda, a current SEC commissioner and a critic of Gensler’s approach, and Dan Gallagher, a former SEC commissioner from 2011 to 2015 and current executive at Robinhood who has been dealing with the Wells notice the SEC sent to Robinhood Crypto in May.
During a discussion on Fox Business in October, Uyeda discussed the regulatory climate surrounding cryptocurrencies and called Gensler’s policies “a disaster for the whole industry.”
Gensler, for his part, has remained firm in his criticisms of the crypto industry, detailing in a speech at the Practicing Law Institute’s 56th Annual Institute on Securities Regulation on Nov. 14 the harm the industry has inflicted on investors.
“This is a field in which over the years there has been significant investor harm,” Gensler said. “Aside from speculative investing, and possible use for illicit activities, the vast majority of crypto assets have yet to prove sustainable use cases.”
The SEC has thus far declined to comment on the lawsuit.
