The Blockchain Association and Crypto Freedom Alliance of Texas have filed a lawsuit against the U.S. Securities and Exchange Commission (SEC), challenging its expanded definition of a “dealer” to include digital assets activity. The lawsuit alleges that the SEC’s rule would excessively target crypto traders and lacks necessary economic analysis.
Crypto Lobbyists Take Legal Action
In a move to counter the SEC’s expanded definition of a “dealer,” the Blockchain Association and Crypto Freedom Alliance of Texas have filed a lawsuit in the District Court for the Northern District of Texas. The lawsuit asserts that the SEC’s broadened definition would encompass individuals engaged in mere digital assets trading activities, without due consideration of public feedback or economic analysis.
The lawsuit contends that the SEC’s failure to adequately engage with public feedback during the rule’s comment period and its omission of required economic analysis render the rule arbitrary and unlawful under the Administrative Procedures Act. It claims that the new definition of a “dealer” could inadvertently impact various participants in digital asset markets, including liquidity pool participants.
Key Arguments of the Lawsuit
The lawsuit underscores the distinction between a “dealer” and a trader, emphasizing that the SEC’s definition fails to exclude individuals buying or selling securities for their accounts. It highlights concerns over the lack of clarity regarding which digital asset transactions qualify as securities transactions, contributing to industry uncertainty.
SEC’s Rationale for the Expanded Definition
Following a 3-2 vote in favor, the SEC adopted the expanded definition of a “dealer” in February, focusing on the securities trading activities undertaken by individuals rather than the type of security being traded. The regulator considered potential unfair advantages for crypto dealers over traditional finance counterparts if certain aspects of the crypto industry were excluded from the rule.
Industry Criticisms and Concerns
The lawsuit echoes broader industry criticisms regarding the SEC’s regulatory approach to digital assets. It accuses the SEC of unlawfully overstepping its statutory authority and perpetuating uncertainty within the digital assets industry. Additionally, it challenges the SEC’s ad hoc approach to categorizing specific digital assets as securities, contributing to further confusion among market participants.
As the Blockchain Association and Crypto Freedom Alliance of Texas challenge the SEC’s expanded “dealer” definition, the outcome of this lawsuit could have significant implications for the regulatory framework surrounding digital assets. The lawsuit not only questions the legality of the SEC’s rule but also highlights broader concerns regarding regulatory clarity and industry uncertainty in the rapidly evolving crypto landscape.
