The Blockchain Association and the Crypto Freedom Alliance of Texas have initiated legal action against the U.S. Securities and Exchange Commission (SEC) by filing a lawsuit in the District Court for the Northern District of Texas. The lawsuit challenges the SEC’s expanded definition of “dealer,” contending that it unfairly encompasses regular digital asset trading activities.
Rising Crypto Scrutiny for SEC
In Texas, the Blockchain Association (BA) and the Crypto Freedom Alliance of Texas (CFAT) have jointly sued the U.S. Securities and Exchange Commission (SEC), as confirmed in an official statement.
The BA and CFAT argue that the SEC’s interpretation of the term “dealer” within the Securities Exchange Act of 1934 goes beyond its lawful boundaries.
The legal action, announced by the BA on April 23, questions the SEC’s recent move to broaden the scope of the “Dealer Rule,” which, according to these industry bodies, is stifling innovation within the American digital asset domain.
In a bid to regulate the crypto landscape more rigorously, the SEC introduced new guidelines in February that redefine the roles of “dealer” and “government securities dealer.” Consequently, more participants in the cryptocurrency market are now obligated to register, join a self-regulatory organization, and comply with federal securities regulations.
The lawsuit seeks a judicial declaration that the regulation is “arbitrary, capricious, or otherwise not in accordance with law” under the Administrative Procedures Act. Furthermore, it requests an injunction to prevent the SEC from enforcing this rule.
The lawsuit asserts, “Due to the rule’s sole focus on the aftermath of trading, the expanded definition of ‘dealer’ could potentially encompass various participants in digital asset markets, including individuals engaging in digital asset liquidity pools.”
It underscores the distinction between a dealer and a trader, explicitly excluding individuals who trade securities for personal accounts.
Allegations of Unlawful Regulation by SEC
Blockchain Association CEO Kristin Smith condemned the SEC’s rule, labeling it as yet another instance of the commission’s overstepping regulatory boundaries.
The statement criticized the Dealer Rule as part of the SEC’s persistent resistance to digital assets, claiming that it unlawfully extends the agency’s regulatory reach and could drive U.S. companies overseas while dissuading American innovators.
The lawsuit also draws attention to the SEC’s ambiguous stance on which digital asset transactions constitute securities, leading to substantial uncertainty within the industry. It points out that the SEC’s inconsistent approach, whether through official statements or enforcement actions, leaves the sector unsure about the applicability of the dealer rule to different digital assets.
The mounting pressure from the crypto market has led to the resignation of two SEC attorneys, Michael Welsh and Joseph Watkins, following reprimands from a federal judge who accused the agency of “gross abuse of power” in its handling of a case involving the Utah-based crypto firm Debt Box.