A consortium of cryptocurrency industry heavyweights has sued the Texas-based U.S. Securities and Exchange Commission (SEC) in response to years of “faulty SEC enforcement actions.”
The Texas lawsuit, led by the Crypto Freedom Alliance of Texas (CFAT) and Lejilex, a Fort Worth, Texas-based startup cryptocurrency exchange, seeks judicial clarity on whether the SEC has regulatory authority over most digital asset transactions in the state. I demand it. Plaintiffs argue that the SEC has no such authority, despite the SEC’s frequent claims to the contrary.
“The SEC’s unlawful and unpredictable approach has created an environment in which companies like Lejilex cannot operate without fear that they will be subject to SEC enforcement action,” CFAT said in a press release Wednesday.
CFAT is comprised of several cryptocurrency industry leaders, including Coinbase, Andreessen Horowitz’s a16z crypto division, Ledger, Paradigm, and Blockchain Capital. Coinbase is already engaged in its own lawsuit with the SEC over its failure to register as a stock exchange, despite reportedly listing several securities on its platform.
To be clear, this is the first time that a cryptocurrency market participant has proactively sued the SEC, asking the court to rule on a digital asset, prior to the launch of a project. This is a securities-related question. We are not looking for manuscripts… pic.twitter.com/cW5een5e5w
— Amanda Tuminelli (@amandatums) February 21, 2024
The CFAT lawsuit in Texas covers the same subject matter, but instead engages in a proactive legal battle at the state level against the SEC.
“We have learned that cryptocurrency industry participants are actively seeking declarations that secondary market sales are not securities transactions and that digital asset trading platforms do not need to register with the SEC,” said CEO Amanda Tuminelli. He said. In a message from DeFi Education Fund’s legal representative to: decryption.
“It is a similar principle to what Coinbase argued in federal court in New York, but Resilex is a centralized, non-custodial exchange,” she added.
CFAT’s argument is similar to Coinbase’s argument that the SEC’s interpretation of “investment contracts” under the Howey Test is overly broad and would result in securities sales in transactions that were clearly nothing of the sort.
CFAT used the example of purchasing limited edition Nike running shoes to explain its position. This is when someone purchases a pair of shoes with the intention of reselling them later at a higher price in anticipation of Nike’s ongoing marketing efforts.
Under the SEC’s rules, sneakers could technically be classified as “securities,” resales as “securities,” and auction houses that resell shoes as “unregistered stock exchanges,” CFAT said.
“We wanted to start a business instead of filing a lawsuit, but this is what happened,” Lejilex co-founder Mike Wawszczak said in a statement. “The fear of poor execution should not be something entrepreneurs are forced to experience.”
The SEC has faced widespread criticism for its handling of the cryptocurrency industry, both from Congress and within itself.
But last year, the agency’s legal cases against cryptocurrency companies Ripple and Grayscale all fell apart, raising analysts’ optimism that the charges against Coinbase could be dismissed outright.
That said, Brian L. Frye, a law professor at the University of Kentucky, isn’t very convinced by Coinbase or CFAT’s legal arguments.
“This lawsuit is interesting, but I think it’s unlikely,” Frye said. decryption. “I think trying to devise a clear test distinguishing between securities and non-securities is the right tactical move, but I also think their test may be more restrictive to the SEC than the courts will accept.”
The SEC’s Howey test defines an investment agreement as investing money in a joint enterprise with the expectation of benefiting from the efforts of another. As Frye explains, CFAT argues that it should fail the test because it does not provide most cryptocurrency holders with a direct stake in a “common enterprise.”
“It’s clever, but I don’t think it will work.” Fry said. “The same goes for most (almost all!) shareholders.”
On Wednesday, it was confirmed that one of the SEC’s cryptocurrency division’s top attorneys has left the agency in favor of a private sector role that could begin supporting the cryptocurrency industry.
Editor: Andrew Hayward
