18 States File Joint Lawsuit Against SEC Over Cryptocurrency Regulation

TLDR

• 18 US states filed lawsuit against SEC Chair Gary Gensler claiming “gross government overreach”
• SEC enforcement actions have cost crypto industry $426 million since 2021
• States argue SEC is attempting to take regulatory authority away from them
• Major crypto firms including Binance, Consensys, Coinbase and Kraken faced SEC legal battles
• Trump promised to fire Gensler on first day if elected president

In a bold move challenging federal oversight of cryptocurrency markets, 18 U.S. states have joined forces to file a lawsuit against Securities and Exchange Commission (SEC) Chair Gary Gensler and his agency.

The legal action, filed on November 15, 2024, accuses the SEC of overstepping its authority in regulating digital assets.

The coalition, which includes Nebraska, Tennessee, Wyoming, Kentucky, West Virginia, Iowa, Texas, Mississippi, Ohio, and Montana, among others, claims the SEC has attempted to “unilaterally wrest regulatory authority away from the States.” This marks one of the largest coordinated legal challenges to the SEC’s cryptocurrency enforcement approach.

The lawsuit comes amid mounting tensions between state and federal regulators over cryptocurrency oversight. State authorities argue that the SEC’s aggressive enforcement tactics have created an unclear regulatory environment that hampers innovation and economic growth in their jurisdictions.

🚨SCOOP: 18 U.S. states have filed to sue the @SECGov and its commissioners, accusing them of unconstitutional overreach and unfair persecution of the #crypto industry under the leadership of agency chief @GaryGensler.

The lawsuit, signed by 18 Republican Attorneys General,… pic.twitter.com/wxOovuIRQH

— Eleanor Terrett (@EleanorTerrett) November 14, 2024

According to data from the Blockchain Association, the SEC’s enforcement actions have resulted in $426 million in costs to the cryptocurrency industry since 2021. This figure includes legal fees, settlements, and penalties paid by various crypto companies.

Several major cryptocurrency exchanges and platforms have found themselves in the SEC’s crosshairs. Companies like Binance, Consensys, Coinbase, and Kraken have faced legal challenges from the federal regulator, leading to protracted court battles and substantial legal expenses.

The conflict has drawn attention from political figures, including President-elect Donald Trump, who has pledged to remove Gensler from his position on his first day in office. This promise has become a talking point in broader discussions about cryptocurrency regulation and federal oversight.

BREAKING: Donald Trump to fire Gary Gensler and hire pro-Bitcoin administration. pic.twitter.com/KxUYoBM65s

— Jordan Harmon (@JordanHarmon) July 27, 2024

Despite mounting pressure, Gensler has maintained his stance on cryptocurrency oversight. In a recent speech at the Practicing Law Institute’s 56th Annual Institute on Securities Regulation on November 14, he defended the SEC’s position, expressing concerns about investor protection in the crypto space.

The lawsuit specifically challenges the SEC’s method of regulation through enforcement, which states argue has created an unpredictable regulatory environment. The plaintiffs contend this approach has forced companies to comply with unclear rules or face costly legal battles.

State regulators emphasize their historical role in overseeing financial markets within their borders. They argue that the SEC’s current approach disrupts the traditional balance between state and federal regulation of financial markets.

The legal filing details multiple instances where the SEC’s enforcement actions allegedly exceeded its statutory authority. States maintain they have the right to establish their own regulatory frameworks for digital assets within their jurisdictions.

The lawsuit seeks to establish clear boundaries between state and federal regulatory authority over cryptocurrency markets. The states are requesting the court to define the limits of the SEC’s enforcement powers in the digital asset space.

Financial data presented in the lawsuit indicates that state economies have been impacted by the SEC’s enforcement actions. The plaintiffs argue that regulatory uncertainty has led to job losses and reduced investment in their local technology sectors.

The court filing includes examples of crypto companies that have either left the United States or avoided launching operations due to regulatory concerns. States argue this exodus of crypto businesses has negatively affected their economic development plans.

Multiple crypto industry leaders have submitted statements supporting the states’ position. These testimonials detail how SEC enforcement actions have affected their business operations and ability to innovate.

The case is currently pending in federal court, with initial hearings expected to begin in early 2025. The outcome could reshape the regulatory landscape for cryptocurrency in the United States.