The Blockchain Association and the Crypto Freedom Alliance of Texas have taken legal action against the U.S. Securities and Exchange Commission regarding a recently enacted dealer rule that they believe could have severe repercussions on the industry.

In a Texas district court filing on Monday, both organizations accused the SEC of breaching the Administrative Procedures Act, which dictates the process by which federal agencies formulate and implement regulations. The Blockchain Association, supported by prominent members like Coinbase, Digital Currency Group, Uniswap, and Kraken, is seeking judicial intervention to invalidate the new rule.

Blockchain Association CEO Kristin Smith stated, “Before more harm can be done by this rabid regulator, we are seeking declaratory judgment and injunctive relief against the SEC to overturn their rule expansion and prohibit its use against our industry.”

The SEC’s recent regulations, endorsed in February, mandate that market participants engaged in substantial liquidity provision must adhere to federal securities laws, encompassing cryptocurrency activities. The extensive 247-page rule applies to individuals involved in transactions with crypto assets classified as securities or government securities, excluding those with assets valued under $50 million. The rule also encompasses DeFi activities, eliciting strong opposition from crypto industry factions.

The Blockchain Association and the Crypto Freedom Alliance of Texas contend that the SEC overstepped its bounds by defining dealers beyond its legal authority and disregarding feedback and apprehensions from stakeholders regarding the rule’s implications for digital assets and DeFi.

The enforcement deadline for the rule is set for a year following its implementation on April 29, 2024. An SEC spokesperson affirmed, “The Commission undertakes rulemaking consistent with its authorities and laws governing the administrative process and will vigorously defend the final dealer rules in court.”

This legal challenge is one of several recent lawsuits lodged against the SEC. Earlier this year, the Crypto Freedom Alliance of Texas and digital asset company LEJILEX initiated legal action in a Texas court, alleging the SEC’s “unlawful targeting” of the crypto sector. Additionally, the DeFi Education Fund and Texas Apparel Company Beba sued the SEC last month for APA violations, seeking a declaration that their $BEBA token airdrop does not qualify as a security.

In a separate case last year, cryptocurrency exchange Coinbase sued the SEC to prompt a definitive response to its rulemaking petition.

[Disclaimer: The Block is an independent media outlet providing news, research, and data. As of November 2023, Foresight Ventures holds a majority stake in The Block and invests in various crypto companies. Bitget, a crypto exchange, serves as an anchor LP for Foresight Ventures. The Block remains independent, delivering unbiased and timely information about the crypto industry. Financial disclosures are available.]

© 2023 The Block. All Rights Reserved. This article is for informational purposes only and does not constitute legal, tax, investment, financial, or any other form of advice.