Ninth Circuit Affirms Dismissal of Crypto Law Firm’s Lawsuit Against SEC
On Thursday, August 22, 2024, the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a lawsuit against the U.S. Securities and Exchange Commission.
The plaintiff in the case was Hodl Law, PLLC, a law firm that engages in transactions using the digital currency Ether and the Ethereum blockchain network. Hodl Law sued the SEC, arguing that the regulatory agency’s failure to provide clear guidance on whether Ether constitutes security created economic uncertainty and posed a risk of potential future enforcement actions against the firm.
However, the Ninth Circuit agreed with the lower district court’s finding that the federal courts lacked subject matter jurisdiction over the suit because Hodl Law failed to establish a genuine legal controversy as required by Article III of the U.S. Constitution. In a memorandum, the three-judge panel found that Hodl Law did not demonstrate a “realistic danger” of enforcement action by the SEC.
While Hodl Law uses Ether as part of its legal business, the SEC has neither investigated nor threatened investigation of the firm for potentially violating securities law. The SEC also has yet to take an official position classifying Ether, and the court noted it’s possible the agency may never determine whether the cryptocurrency meets the definition of a security.
Additionally, the alleged economic harm Hodl Law claimed was uncertain and speculative, depending on the hypothetical scenario where the SEC brings an enforcement action in the future. But current injury must be “concrete and particularized” to satisfy standing for a justiciable case, according to the Ninth Circuit.
The appeals court also rejected Hodl Law’s argument that the SEC’s consistent failure to provide general regulatory guidance on the status of cryptocurrencies created a legal controversy. Since the agency has no statutory or regulatory obligation to issue such pronouncements, the court found its inaction did not constitute a reviewable final agency action.
In closing, the Ninth Circuit affirmed the district court’s dismissal with prejudice, concluding any amendment to Hodl Law’s complaint would be futile as the firm still could not demonstrate the “realistic danger” of agency enforcement needed to bring a valid constitutional claim. The panel’s ruling denies Hodl Law further legal recourse against the SEC on this matter in federal court.
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