The lawsuit challenges the SEC's dealer rules on the grounds that they do not adhere to a transparent and fair rulemaking process and violate the Administrative Procedures Act (APA).
Two major blockchain organizations, the Blockchain Association (BA) and the Crypto Freedom Alliance of Texas (CFAT), filed a lawsuit To the U.S. Securities and Exchange Commission (SEC). They filed this legal challenge in the Northern District of Texas.
Their lawsuit addresses what they see as the SEC's misguided regulatory actions against the U.S. digital asset market.
The core of BA and CFAT's legal challenges lies in the SEC's “Dealer Rule.” Plaintiffs say the rule violates several aspects of the Administrative Procedures Act (APA).
Impact of SEC Dealer Rules
The SEC redefined the definition of “dealer” in February. This new definition applies to any market participant providing liquidity or acting as a market maker, regardless of the securities involved.
Specifically, it targets companies that manage at least $50 million in assets. This change specifically affects automated market makers and liquidity providers within decentralized finance (DeFi) platforms that work with traditional securities dealers.
Plaintiffs allege that the rule was not implemented through a transparent and fair rulemaking process. This has resulted in unclear regulations that hinder the operations of participants in the digital asset industry.
The revamped dealer definition faces significant opposition within the crypto community and from the SEC itself.
Commissioners Hester Pearce and Mark Ueda criticized the new rules, highlighting the potential for overreach and blurring the lines between dealers and traders. The SEC reportedly adopted the rule on a 3-2 vote, reflecting internal opposition.
“This is the latest example of the SEC's blatant attempt to illegally regulate outside its purview, avoiding its legal obligation to address numerous concerns raised during the condensed comment period. ” wrote Kristin Smith, CEO of the Blockchain Association, in an email. Statement to Unchained.
Legal concerns cited
The lawsuit highlights the SEC's failure to address important issues raised during the 2022 rule's 39-day comment period.
BA and CFAT argue that the SEC's expanded interpretation of the term “dealer” is inconsistent with its decades-established meaning. They argue that this approach could seriously harm the vast network of individuals and companies involved in digital asset transactions.
“The SEC's illegal and radical expansion bears no resemblance to the long-established meaning of the term, and an approach that will irreparably harm tens of millions of Americans and businesses that participate in digital asset transactions. ”, the Blockchain Association said in a recent statement.
