GOP state attorneys general side with crypto industry in suit against SEC

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As if we didn’t already have enough lawsuits to keep track of, 18 Republican state attorneys general sued the SEC and Chair Gary Gensler Thursday for allegedly infringing upon states’ rights to enforce the crypto industry. 

The states — including Kentucky, Florida and Texas — claim the securities regulator is “attempting to shoehorn digital assets into ill-fitting federal securities laws and inapt disclosure regimes,” according to the complaint. 

Their argument is that economic policy, like those concerning cryptocurrency, should be left up to state regulators. The SEC is violating federalism and separation of powers, the attorneys general state. 

The language is reminiscent of similar suits we’ve seen in the past. In Coinbase’s lawsuit against the SEC, the exchange alleged securities regulators were unlawfully overstepping. 

“The [SEC] is asserting sweeping new authority over a vibrant, rapidly expanding industry — digital assets,” Coinbase’s team wrote in the opening brief of the case. “But the SEC is pursuing this power grab through enforcement actions, and it has refused to set forth its new interpretation of its enabling statutes in a rulemaking, where the lack of legal basis for its self-aggrandizement would be laid bare.”

The states’ legal action comes as the industry continues to hold out hope that President-elect Donald Trump’s second term will bring a new era of crypto policy. Trump’s campaign promises to “fire Gary Gensler on day one” and hire Tesla CEO Elon Musk to overhaul “government efficiency” have many crypto fans hopeful the “regulation by enforcement” age is coming to an end. 

Gensler, who has not shared any plans to leave the agency, said during a Thursday legal conference in New York that the SEC, under his leadership, has been backed by the law. 

“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,” Gensler said. 

When closing out his Thursday remarks, though, Gensler made a comment that could be an allusion to his possible departure. 

“It’s been a great honor to serve with them, doing the people’s work, and ensuring that our capital markets remain the best in the world,” Gensler said, thanking the staff and his fellow commissioners at the agency. 

As we wrote about last week, SEC chairs tend to resign when the incoming administration differs from the one under which they were appointed. Former Chair (and new US attorney to the SDNY) Jay Clayton announced his resignation on Nov. 16, 2020 after President Joe Biden won. 

I don’t know what’s going to happen. But if history is any indication, I’d keep your eyes peeled on Monday.

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