A coalition of crypto entrepreneurs filed a lawsuit in Texas this week that could force the Supreme Court to take up the crucial question of whether the Securities and Exchange Commission has the authority to regulate most digital assets.
The outcome of the battle could determine the future of companies like cryptocurrency exchange Coinbase Global.
coin
,
Binance and Kraken, and various future crypto projects like Solana
SolUSD
,
cardano
ADAUSD
and polygon
Matic USD
—The SEC charged all of them with violating federal securities laws by failing to register with the SEC.
The Crypto Freedom Alliance of Texas, a nonprofit industry group, and the yet-to-be-launched cryptocurrency exchange Resilex filed a lawsuit in federal court on Wednesday seeking a judicial declaration that the sale of digital assets is not a securities transaction. submitted. Alleged in lawsuits against Coinbase, Binance, and Kraken.
read more: SEC charges Coinbase with illegally operating an unregistered stock exchange
“We should have started a business instead of filing a lawsuit, but here we are,” Lejilex co-founder Mike Wauszczak said in a statement. “The SEC's fraudulent enforcement actions targeting our industry are paralyzing those of us who just want to build legitimate businesses and technology.”
The SEC declined to comment.
The industry hired the Clement & Murphy law firm, led by former Attorney General Paul Clement and litigation expert Erin Murphy. The firm specializes in “strategic litigation,” or litigation motivated by a desire to effect broader policy change, often through a judgment. In the Supreme Court.
The lawsuit was filed in the U.S. District Court for the 5th Circuit, which is known for its large number of conservative judges, and is led by Judge Reed O'Connor, who was appointed by President George W. Bush and is known for rulings that undermine Obamacare laws. was in charge. liberal cause.
“The crypto industry needed to find a way for these very conservative courts to hear these cases,” said Todd Phillips, an administrative law expert who teaches at Georgia State University. There's no way I could make a judgment based on that.”
Crypto Freedom Alliance of Texas and Resilex told Judge O'Connor that the exchange is not required to register as a stock exchange with the SEC to avoid being sued by the SEC based on the same theory. We are seeking a declaratory judgment that there is no such thing. He accused Coinbase of violating the law.
The cryptocurrency industry will take control from the SEC, which has traditionally been able to choose when and where to take on digital asset companies in court, according to a person familiar with the plaintiffs' strategy. I can do it.
Even if the SEC succeeds in convincing other district courts in New York, Washington, D.C., and California that virtual currency exchanges violate securities laws, a favorable decision in the Fifth Circuit , a situation will likely arise in which the Supreme Court will have to take the following steps: Raise the case.
The Supreme Court is controlled by a 6-3 conservative majority, and they have issued rulings in recent years that weaken the regulatory state, including a ruling that blocked the Environmental Protection Agency's ability to fight climate change by regulating electric utilities. He is enthusiastic about getting the job done. He said the Consumer Financial Protection Bureau's leadership structure violates the Constitution.
“The crypto industry is basically trying to fabricate a circuit split so that the Supreme Court has to litigate,” Phillips said.
The case's central argument is that the SEC misunderstands case law regarding the question of what constitutes an “investment contract.”
Investment contracts are securities under federal law, and those who issue them or operate exchanges that sell them must register with the SEC and comply with its regulatory regime.
See also: Blockchain company LBRY seeks to rally the sector against the SEC.Critics claim “virtual currency suppression program”
SEC argues that digital assets like Solana and Cardano are securities because investors buy these tokens and expect to profit based on the efforts of the entrepreneurs behind these projects. Did.
In the Lejilex case, the SEC recognized the fact that for a digital asset to qualify as an investment contract, the purchaser of that asset must have some kind of contractual claim to the proceeds earned by the asset's issuer. He claims to be ignoring it. This is not the case for Solana, Cardano, or other tokens that the SEC has characterized as securities in its lawsuit against cryptocurrency exchanges.
Based on the SEC's view of the law, the SEC regulates collectibles such as limited edition sneakers and baseball cards as securities because investors often purchase these products with the expectation that their value will increase. The plaintiffs argue that this will be allowed. Advertising activities for manufacturers of collectibles.
The SEC will have the opportunity to respond to Lejilex's claims in its own filing in the coming months, and the court will likely rule on the issue later this year.
