18 States File Lawsuit Against SEC Chair Gary Gensler Over Crypto Regulation
On Thursday, 18 states in the United States filed a lawsuit against SEC Chair Gary Gensler, the agency, and other Commissioners, citing 'unconstitutional overreach' in the $3 trillion crypto market.
Kentucky Attorney General Russell Coleman, along with 17 other Republican attorneys general, initiated the lawsuit in Kentucky district court, collaborating with DeFi Education Fund, a crypto advocacy group advocating for sound regulatory policy in the DeFi sector.
The lawsuit argues that the SEC's broader crackdown on the crypto industry violates fundamental principles of federalism and is unconstitutional. It emphasizes that government agencies must operate within their constitutionally defined roles.
As SEC Chair, Gensler has stated that most cryptocurrencies, excluding bitcoin and ether, fall under the SEC’s jurisdiction as securities. This stance has led to numerous lawsuits against major industry players such as Coinbase, Kraken, Ripple, and Consensys for selling unregistered securities.
Gensler’s approach has faced significant opposition from the crypto industry, with 18 state attorneys general and several members of Congress arguing that he is overextending the SEC’s regulatory reach. They assert that without clear crypto regulations or a designated authority, firms will remain in a "regulatory limbo".
Gary Gensler Defends His Actions
During the Practicing Law Institute's 56th Annual Institute on Securities Regulation conference, SEC Chair Gary Gensler defended his actions against the crypto industry, stating:
“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 their form.”
The lawsuit contends that the SEC and Gensler have imposed restrictions on crypto platforms without an appropriate regulatory framework, introducing significant risks to a rapidly growing economic sector. The AGs argue that Congress did not grant broad regulatory authority over digital assets to federal agencies like the SEC, allowing states to lead on the issue. They claim the SEC has ignored this division of power.
The lawsuit states, “By attempting to shoehorn digital assets into ill-fitting federal securities laws and inapt disclosure regimes, the SEC is harming the very citizens it purports to protect by displacing better-suited state laws designed to ensure consumer protection in the digital asset industry.”