SEC hit by lawsuit brought by Blockchain Association and Crypto Freedom Alliance of Texas

Two crypto industry groups Blockchain Association (BA)and the Crypto Freedom Alliance of Texas (CFAT) have filed a lawsuit against the Securities & Exchange Commission (SEC) in a federal court in Texas. 

The two groups are challenging the SEC’s new rule that broadens the definition of who the regulator considers as a “dealer” of securities. 

SEC faces lawsuit on ‘misguided attacks’ in crypto industry

According to an update on the Blockchain Association website, two crypto groups have filed a lawsuit against the US financial regulator in the Northern District of Texas. The BA and CFAT challenge the SEC’s “misguided attacks” on the US digital asset industry. It is likely that here the two crypto groups refer to enforcement action and the regulator’s lawsuits against Ripple and Coinbase, among other firms. 

In the official announcement, the groups slam the SEC for its “arbitrary and capricious rule making” and seek a court order to strike down the Dealer Rule. The groups argue that the SEC’s various Administrative Procedure Act (APA) violations prevent crypto industry participants from operating within communicated rules. 

The BA and CFAT allege that the SEC has violated APA by “unlawfully” expanding the regulator’s interpretation of the term “dealer,” which is a part of the Securities Exchange Act of 1934. 

The development has an impact on crypto traders since the SEC’s new rule stands to impact tens of millions of Americans and digital asset trading businesses. In expanding the term, the regulator likely applies a “vague,” “broad” standard to market participants, some of which may completely differ from what the definition of the word has been for decades. 

The groups are seeking a declaratory judgment and a legal remedy to stop the regulator from making the rule change and enforcing it (injunctive relief).