A Texas cryptocurrency company and industry group filed a lawsuit Wednesday against the U.S. Securities and Exchange Commission (SEC), claiming the regulator abused its power and asking a judge to rule that digital assets traded on exchanges are not securities. I did.
Fort Worth-based cryptocurrency company Lejilex and lobbying group Crypto Freedom Alliance of Texas (CFAT) claim the SEC has asserted jurisdiction over the industry without a “clear legal mandate.”
Lejilex said it intends to operate a cryptocurrency platform called Legit.Exchange. The company, founded last year, said in a lawsuit against Coinbase, the largest U.S. cryptocurrency exchange, and Binance, the world’s largest cryptocurrency exchange, that it plans to list digital assets, including those deemed securities by the SEC.
Lejilex wants the court to rule that listing existing tokens does not violate securities laws.
“I wanted to start a business instead of filing a lawsuit, but this is what happened,” Lejilex co-founder Mike Wawszczak said in a statement.
An SEC spokeswoman did not immediately respond to a request for comment.
Both Coinbase and Binance denied the SEC’s claims.
CFAT asked the court to block the SEC from suing its members, saying the SEC’s assertion of jurisdiction over digital assets has made it more difficult to persuade Texas lawmakers to embrace “reasonable policies.”
The group launched last year and counts Coinbase and venture capital firm Andreessen Horowitz’s a16z cryptocurrency fund as members.
CFAT and Lejilex argue that the SEC erred in classifying digital assets as “investment contracts.” This is because digital assets do not create an ongoing commitment between the creator and the buyer.
They also asked the court to apply the “vital question” doctrine, which allows judges to invalidate actions of executive agencies of “vast economic and political significance” unless explicitly authorized by Congress.
The once rare principle has drawn attention among regulation opponents after the conservative-leaning U.S. Supreme Court applied it to several recent cases.
Cryptocurrency companies fighting SEC enforcement actions, including Coinbase and Binance, have made the same argument on other occasions, but so far without success.
Last July, a judge rejected arguments in the SEC’s case against Ripple Labs that ongoing efforts were needed to turn the assets into securities. Another judge overseeing the regulator’s lawsuit against Terraform Labs found that the “key question” doctrine does not apply to the cryptocurrency industry. Both cases were filed in New York.
A new lawsuit filed in federal court in Fort Worth brings the industry’s battle with regulators under the jurisdiction of the U.S. 5th Circuit Court of Appeals. More than two-thirds of the appeals court’s judges have been appointed by Republican presidents, making it a preferred venue for challenges to the SEC under the Biden administration.
The case was assigned to Judge Reed O’Connor, an appointee of Republican former President George W. Bush who has a record of favorable rulings for conservative litigants challenging laws and regulations on guns, LGBTQ rights and health care.
The plaintiff is represented by Paul Clement, who served as U.S. Attorney General under President George W. Bush.
© Thomson Reuters 2024
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