A coalition of 18 states, led by Kentucky Attorney General Russell Coleman and Utah Attorney General Sean Reyes, has filed a lawsuit challenging the Securities and Exchange Commission’s SEC authority to regulate cryptocurrencies.
The states argue that the SEC has overstepped its bounds by attempting to regulate digital assets like cryptocurrencies as securities, a move they claim violates the principles of federalism and infringes on state rights to regulate the digital asset industry.
The lawsuit asserts that states have developed their own frameworks for cryptocurrency regulation, with a focus on fostering growth while protecting consumers.
It claims that the SEC’s enforcement actions are undermining state-led initiatives and misapplying outdated legal theories. The states further argue that digital assets should not be classified as investment contracts, and therefore not subject to SEC oversight, as they do not meet the criteria for securities under federal law.
The suit highlights that Congress has not granted the SEC the authority to broadly regulate digital assets, and the agency’s actions could set a precedent for regulating other non-securities transactions, such as the sale of sneakers or baseball cards.
The coalition is seeking judicial clarification on the SEC’s role, asking the court to rule that digital asset transactions are not investment contracts under certain conditions and to block the SEC from taking enforcement actions under its current approach. The states also request reimbursement for legal fees and costs.