Crypto Groups Seek Summary Judgment Against SEC Expanded Dealer Definition

News | May 31, 2024 By:

On Friday, May 17, 2024, the Crypto Freedom Alliance of Texas and Blockchain Association filed a motion for summary judgment in their lawsuit against the Securities and Exchange Commission.

The two plaintiff organizations, which advocate for the cryptocurrency and blockchain industries, had originally filed a lawsuit on April 23rd challenging a new SEC rule that expanded the definition of a “dealer” under securities law. They argued the new definition was overly broad and unclear as it assessed entities based on the effects of their trading activity rather than the services provided.

In their motion for summary judgment, filed in the U.S. District Court for the Northern District of Texas, the Crypto Freedom Alliance of Texas and Blockchain Association asserted that there were no disputed facts in the case, and they were entitled to a judgment as a matter of law. They maintained the expanded dealer definition exceeded the SEC’s statutory authority as established in securities laws.

Specifically, the plaintiffs argued the new “effects-based” standard swept too broadly and failed to clearly outline when digital asset transactions, such as contributions to decentralized liquidity pools on blockchain networks, would be subject to dealer regulations. Liquidity pools allow traders to provide cryptocurrency and other digital assets to smart contracts facilitating trades between other users, earning yields on those pooled assets.

By filing for summary judgment, the two crypto advocacy groups aimed to have the expanded dealer rule invalidated without needing to proceed to a full trial. They contended the SEC overstepped its authority in adopting the rule and failed to properly address concerns raised during the public comment period about its potential negative impacts on the cryptocurrency industry.

The motion emphasized the expanded definition created immense regulatory uncertainty that threatened innovation in the expanding space of digital currencies. The plaintiffs sought a ruling in their favor to remove this overreach and lack of clarity around how existing securities laws apply to the novel decentralized systems powering much of the emerging crypto economy.

Please contact BlockTribune for access to a copy of this filing.