Estimated read time: 4-5 minutes
- Utah and 17 states sued the Securities and Exchange Commission over cryptocurrency regulation authority.
- The suit argues the SEC overstepped its jurisdiction.
SALT LAKE CITY — Utah and 17 other states sued a federal agency over the way it regulates cryptocurrencies. The states say the federal agency in question overstepped its authority in doing so and should have left it to the states.
Kentucky Attorney General Russell Coleman led efforts on filing the suit against the Securities and Exchange Commission. It was filed Thursday. Coleman told Fox Business recently that through the election, Americans "rejected the weaponization of the federal government."
"The Biden-Harris administration's unlawful crypto crackdown has targeted the tens of millions of ordinary people who are taking part in this vibrant digital market," said Coleman. "Along with conservative AGs across the country, we're filing this challenge to cut the bureaucracy down to size."
Utah Attorney General Sean Reyes also helped lead the coalition of states in filing this suit. Reyes is the outgoing chairman of the national Republican Attorneys General Association.
States like Louisiana, Missouri, Texas and Florida signed onto the suit as well as the DeFi Education Fund.
It challenges the authority of the SEC to regulate cryptocurrencies. The SEC is a federal agency that oversees and regulates markets for securities, like stocks or bonds.
The suit questioned whether or not digital assets like cryptocurrencies should be regulated by the SEC. Instead, the states argued, it should be left to them to determine how to regulate the digital asset industry.
"States have fulfilled their constitutional role as 'laboratories for experimentation to devise various solutions' for government oversight of the digital asset industry, allowing other states and the federal government to learn from their experiences," said the suit.
The Deseret News reached out to the press contact at the SEC requesting a statement and did not hear back before publication.
Reyes said in a statement that the SEC is overstepping its authority and using outdated legal theories to justify it.
"The desire to prevent misuse of crypto is understandable," he said. "But there are ways to do that constitutionally. There are approaches states like Utah have taken to balance blockchain growth and safeguards. The SEC's attempt to regulate most digital assets into oblivion is wholly improper."
The states' claims
The coalition of states said in the suit that because of blockchain technology, there's a trillion-dollar digital asset industry. The states said state governments have regulated the industry by creating frameworks to allow growth and also protect consumers.
"While state regulatory approaches have varied in accordance with local needs, they have consistently endeavored to provide transparent and administrable rules of the road," said the suit. "And Congress has repeatedly declined proposals to give federal agencies broad regulatory power over digital assets."
The suit alleged the SEC took regulatory authority away from the states through enforcement actions without having the authorization from Congress to do so.
Are digital assets considered securities? The suit claimed digital assets are assets, not investment contracts, which would be considered securities, even though the suit claims the SEC is operating as if these assets are securities.
Under federal law and prior Supreme Court precedent, the suit said the SEC doesn't have the power to regulate all digital asset transactions as securities transactions. The suit claimed Congress didn't grant this regulatory power.
Instead, the states said that the states are better suited to regulate the industry.
"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," alleged the suit.
In addition to making the argument the power should be with the states, the suit alleged state economies have suffered because of the SEC's approach.
The suit claimed that under the theory the SEC is using to regulate digital assets, the agency could also regulate the sales of things like Nike sneakers or baseball cards.
"That would leave the SEC with practically unbounded jurisdiction and would impose the complex and detailed disclosure requirements of the federal securities laws on all kinds of transactions that have never been understood to fall within their scope," said the suit.
The states asked the court to say a digital asset transaction isn't an investment contract under certain conditions. They also want the court to say the SEC can't bring enforcement actions based on certain criteria too.
The states also requested the court award attorneys' fees and costs.
