Ahead of an expected regulatory leadership transition following the election of Donald Trump, 18 states have filed suit against the Securities and Exchange Commission (SEC) and its commissioners, including Chairman Gary Gensler, over its crackdown on the crypto industry.
Filed Thursday, the suit from 18 states and their respective attorneys general—all Republicans—along with the DeFi Education Fund, alleges that the regulator violated the U.S. Constitution in its approach to regulating digital assets.
“Without Congressional authorization, the SEC has sought to unilaterally wrest regulatory authority away from the States through an ongoing series of enforcement actions targeting the digital asset industry,” the lawsuit, filed in a federal court in Kentucky, argues. “The SEC’s sweeping assertion of regulatory jurisdiction is untenable.”
The suit further alleges that the SEC knowingly defied standard procedure under Gensler’s leadership when it came to crypto, and so the agency intentionally avoided releasing any new crypto rules—as a means to avoid the alleged issues with its “regulatory land grab.”
The 18 states party to today’s lawsuit, led by Kentucky, have now asked a federal judge to grant declaratory and injunctive relief—effectively, to freeze the SEC’s ability to sue crypto companies.
Russell Coleman, Kentucky’s attorney general, framed the suit in starkly partisan terms.
“Instead of encouraging this vibrant new digital industry, the Biden-Harris Administration is unlawfully cracking down on cryptocurrency,” he said in a statement. “Along with conservative AGs across the country, we’re fighting to keep the federal government from reaching into Kentuckians’ wallets—both physical and digital.”
While President-elect Trump has pledged to ardently support the digital assets industry, and is almost certain to appoint a new SEC chair with strong pro-crypto views, the suit appears intended to not only send a message to the outgoing administration, but to prevent any future SEC chair from exercising their powers against the industry as Gensler has.
The 18 attorneys general have formally requested that the court instruct the SEC that it is barred from bringing future enforcement actions against digital asset platforms on the basis of treating "secondary transactions in common digital assets… uniformly [as] ‘investment contracts.'"
Editor's note: This story was updated after publication with additional details.
Edited by Andrew Hayward