A group of Republican-led states is suing the U.S. Securities and Exchange Commission for constitutional overreach when it comes to cryptocurrency. The agency and current SEC Chair Gary Gensler have been a target of President-elect Donald Trump and other Republicans, especially since Trump’s embrace of crypto on the campaign trail this year.
“On day one, I will fire Gary Gensler,” Trump declared at the Bitcoin2024 conference in July. “I will appoint a new SEC chairman who believes America should build the future, not block the future, which is what they’re doing.”
In a lawsuit, attorneys general from 18 states led by Kentucky said the SEC isn’t just blocking the future, it’s blocking states’ rights.
“…the SEC’s regulatory overreach defies basic principles of federalism and separation of powers,” the lawsuit reads, adding, “without Congressional authorization, the SEC has sought to unilaterally wrest regulatory authority away from the States through an ongoing series of enforcement actions…”
The lawsuit argues states have a “constitutional role as ‘laboratories for experimentation to devise various solutions’ for government oversight of the digital asset industry, allowing other States and the federal government to learn from their experiences.”
“Court after court has agreed with our actions to protect investors and rejected all arguments that the SEC cannot enforce the law when securities are being offered, whatever they’re for,” Gensler said at the Practicing Law Institute’s 56th Annual Institute on Securities Regulation.
While the SEC says it won’t comment on the lawsuit, Gensler’s speech Thursday, Nov. 14, defending the agency’s actions came the same day the lawsuit was filed. He extended that defense beyond actions taken since Gensler became chair in 2021.
“Jay [Clayton] had already brought some 80 actions in the crypto field, including on his last week in office,” Gensler said.
Jay Clayton was Trump’s pick for SEC Chair for Trump’s first term. This time around, Trump has nominated Clayton for U.S. Attorney for the Southern District of New York.
“Everything we’ve done is focused on ensuring compliance with [Congress’] laws,” Gensler said. “What we’ve found since the 1930s is that compliance really matters. It protects investors. It builds trust in our capital markets. It helps issuers tap into our markets. And history has shown for 90 years that robust securities regulation both creates trust in our markets, but guess what? It also fosters innovation.”
That’s one area where Republican states and the SEC don’t see eye to eye. The lawsuit argues that while the development of blockchain technology has encouraged innovation, trying to hammer “the square peg of the burgeoning digital asset industry into the round hole of the SEC’s existing regulatory regime could wipe out many new digital asset creators and prevent startups from entering the market altogether, suppressing competition and technological innovation.”
The SEC doesn’t consider Bitcoin, Ethereum and stable coins as securities.
“Our focus, rather, has been on some of the 10,000 or so other digital assets, many of which courts have ruled, were offered or sold as securities,” Gensler explained.
As Gensler noted, courts have largely struck down previous challenges claiming SEC “overreach.” Regardless of this lawsuit’s fate, the crypto industry does expect a far more favorable environment under Trump 2.0.
