The fight is being taken to the Securities and Exchange Commission.
LEJILEX, a digital asset company, and the Crypto Freedom Alliance of Texas (CFAT) filed a lawsuit against the US regulator in a Texas court on Wednesday.
The plaintiffs alleged in court documents that the SEC was not given the proper authority to regulate digital assets.
“Although several SEC commissioners have acknowledged for years that Congress did not provide the SEC with broad authority to regulate digital assets — and although Congress has considered dozens of often bipartisan bills related to digital asset regulation in recent years, none of them — the SEC’s recent enforcement actions have embraced the new position that nearly all digital asset transactions constitute ‘investment contracts’ under the federal securities laws,” the suit alleges.
“Crypto is going to be offensive in the courts,” said Jake Chervinsky, chief legal officer at Variant Fund.
Read more: SEC’s Hester Peirce: We don’t need to regulate crypto through the courtroom
Furthermore, the two argue that the SEC’s enforcement actions call digital assets, “not investment contracts, because “they do not involve any kind of ongoing commitment on the part of the asset seller or developer to manage any joint venture for the benefit of the asset buyer. “
According to the complaint, LEJILEX seeks to “launch a new digital asset trading platform. However, the company is concerned that the SEC may file suit against it at a later date, due to its past actions.
The SEC filed a case against Ripple in 2020. In June last year, it announced actions against Coinbase and Binance.
Read more: Binance and Changpeng ‘CZ’ Zhao face multiple SEC charges
CFAT, on the other hand, “advocates the responsible development” of crypto policies in Texas. It argued that the SEC’s current rule over the industry “hinders the ability of other authorities whose jurisdiction may properly extend to digital assets to enter the field.”
The 57-page complaint alleges that the SEC “refused to submit for public comment any regulations that set forth its view of what purportedly brings a digital asset within its regulatory domain — and in fact expressly a recent petition for rulemaking that the agency refused to request to do so. so.”
Coinbase tried to seek regulatory clarity from the SEC last year, but was denied by the SEC.
Paul Grewal, chief legal officer at Coinbase, weighed in on the Texas suit, asking “how many cases will it take before the [SEC] understand that all this community asks is to understand the rules so that it can follow them faithfully?”
Todd Phillips, an assistant professor of law at Robinson College, believes the ruling will allow the Fifth Circuit to weigh in on the case.
“I expect the 5th circuit to be more susceptible to the [major questions doctrine] & others [arguments] as judges in DC & NY. We’re almost guaranteed to get a circle split on whether 1) crypto-assets can ever be securities and 2) the [major questions doctrine] prevent the SEC from regulating crypto,” he wrote.
Phillips further noted that he previously helped file amicus briefs in the Coinbase case, arguing that “because the SEC only brings enforcement actions under law [without] a regulation, there can’t be a [major questions doctrine] infringement.”
The main question doctrine has been a key point for both Coinbase and Binance and essentially states that Congress must specify whether it wants an agency to have power over important matters instead of implying the authority in law.
Coinbase first cited the doctrine in May of last year, arguing that the SEC cannot make unilateral decisions about crypto.
Last month, Judge Katherine Polk Failla told Coinbase lawyers that she was not “convinced that the crypto industry is so large or extraordinary that I should find it here,” later adding that she also did not “want to take over, I don’t have, to stop something I shouldn’t.”
In November of last year, SEC Commissioner Hester Peirce said that the SEC “needs to think really proactively about building a regulatory framework … that will work and enable companies to do business in the United States, and that is which I hope we can work on in the coming months and years.”
A spokesman for the SEC declined to comment on the matter.
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