SEC and Chairman Gensler sued by 18 US states for abuse of power in crypto industry

The attorneys general of 18 US states are asking the SEC and Chairman Gary Gensler to declare that digital assets are not a type of investment contract and are securities.

The attorneys general of 18 US states, the highest legal authority at the state level, have filed a class action lawsuit against the US Securities and Exchange Commission (SEC) and Chairman Gary Gensler for abuse of power and obstruction of the right to manage digital assets.

Specifically, the list of attorneys general suing the SEC includes the states of Kentucky, Nebraska, Tennessee, West Virginia, Iowa, Texas, Mississippi, Montana, Arkansas, Kansas, Missouri, Indiana, Utah, Louisiana, South Carolina, Oklahoma, Florida - all of which voted for new US President Donald Trump in the recent election.

In addition, the plaintiffs participating in the lawsuit are DeFi Education Fund, a crypto legal advocacy fund that was funded by Uniswap.

In contrast, the lawsuit names the US Securities and Exchange Commission, its Chairman Gary Gensler, and its commissioners as defendants.

🚨SCOOP: 18 U.S. states have filed to sue the @SECGov and its commissioners, accusing them of unconstitutional overreach and unfair persecution of the #crypto industry under the leadership of agency chief @GaryGensler.

The lawsuit, signed by 18 Republican Attorneys General,… pic.twitter.com/wxOovuIRQH

— Eleanor Terrett (@EleanorTerrett) November 14, 2024

In the lawsuit, the state attorneys general ask the court to recognize that “digital assets are not investment contracts,” as well as asking the court to bar the SEC from charging platforms that have not registered as exchanges, brokers, and clearing houses with the commission.

One of the main arguments used by the state attorneys general is that each US state has the right to issue its own regulatory regulations, including for the cryptocurrency sector, and the SEC has failed to respect this by continuing to crack down on crypto on a nationwide scale, despite the fact that the US Congress has not enacted federal regulatory laws.

The lawsuit reads:

“Without the authority granted by Congress, the SEC has unilaterally seized regulatory power from the states through a series of legal actions targeting the digital asset industry, based on the theory that all purchases and sales of virtual currencies are “investment contracts,” and therefore subject to the Securities Act of 1933 and the Exchange Act of 1934, simply because investors expect to benefit from the efforts of the virtual currency offeror.”

The SEC has yet to officially comment on the lawsuit.

On November 14, Chairman Gensler proposed giving the SEC more power to regulate the cryptocurrency industry before Trump takes office. The regulations mentioned by Gensler include giving the SEC regulations on crypto trading, calling for crypto exchanges to register their operations, affirming that all crypto is a security, except Bitcoin, Ethereum and stablecoins.

During his campaign, Donald Trump affirmed that one of his first moves after taking office would be to fire Gary Gensler, as well as loosening crypto policy. Trump also listed a number of pro-crypto officials who could be appointed to the new administration, but has not announced a candidate for the position of SEC Chairman.

The US Securities and Exchange Commission still has lawsuits and warnings with securities allegations against companies in the cryptocurrency industry including exchanges Coinbase, Binance, Kraken, Crypto.com; blockchain infrastructure companies Ripple, Consensys; layer-1 Immutable, stablecoin project TUSD, DeFi project Mango Markets, NFT exchange OpenSea, DEX exchange Uniswap; pressure to prevent Solana ETF, forcing eToro and Terraform Labs to pay fines, ...

On the other hand, the SEC also received some failures such as having to end the securities investigation targeting Ethereum and "turn around" to approve Ethereum ETF quickly, as well as ending the investigation into Paxos/BUSD and Stacks without any further legal action.