Seven States Support Crypto Firm’s Challenge to SEC Enforcement Tactics

On Wednesday, July 10, 2024, state attorneys general from Iowa, Arkansas, Indiana, Kansas, Montana, Nebraska and Oklahoma filed an amicus brief supporting a crypto firm’s challenge to the U.S. Securities and Exchange Commission’s (SEC) enforcement actions.

The amicus brief was filed in support of Lejilex, an early-stage crypto company, seeking to prevent the SEC from taking enforcement action against its planned digital asset exchange. While the states took no position on Lejilex itself, they argued that the SEC has overstepped its authority in bringing enforcement cases against crypto companies rather than establishing rules through proper administrative processes.

According to the states, the SEC’s practice of “scorched-earth litigation” targeting entities it dislikes sets a concerning precedent. They expressed concern that the SEC labeling some cryptocurrencies as securities could impact states’ abilities to protect consumers. If digital assets are considered solely within the SEC’s jurisdiction, states may be unable to enforce their own laws against crypto-related fraud and scams.

Several crypto industry groups also filed briefs supporting Lejilex. They argued that most digital assets lack characteristics of securities, noting that decentralized networks cannot necessarily comply with existing securities rules. Coinbase said threats of SEC enforcement have created uncertainty for the crypto sector.

The parties challenging the SEC advocated for its focus on administrative rulemaking rather than litigation. As the court considers Lejilex’s request for an injunction against future SEC enforcement actions, the underlying issue of how crypto should be regulated remains unresolved. The case implicates the balancing of federal and state financial authorities as digital assets continue to evolve.

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