Two prominent crypto bodies, the Blockchain Association and the Crypto Freedom Alliance of Texas, have taken legal action against the US Securities and Exchange Commission (SEC).
In an April 23 lawsuit, the groups argued that the SEC overstepped its bounds by imposing a rule that redefines the parameters for what constitutes a “dealer” of securities. They said this action was “arbitrary and capricious” and in violation of the Administrative Procedure Act (APA).
Blockchain Association CEO Kristin Smith opined that the rule was “the latest example of the SEC’s blatant attempts to unlawfully regulate beyond its authority [and] to circumvent legal obligations. Smith added:
“The Dealer Rule furthers the SEC’s crusade against digital assets and unlawfully redefines the limits of the statutory authority granted to it by Congress, driving American companies abroad and instilling fear among American innovators.”
Consequently, they want the Court to invalidate the SEC’s Dealer Rule because the financial regulator’s violations of the APA “prevent industry participants from operating under clearly communicated rules that have gone through a fair and transparent regulatory process.”
DeFi impact
Marissa Tashman Coppel, legal leader at Blockchain Association, marked the significant negative impact of the SEC’s rule on the digital asset ecosystem, especially DeFi. Despite the rule’s lack of clarity, she argued that the law implicates liquidity providers, DeFi software and developers.
Coppel said:
“The new rule introduces two tests to identify dealers, both of which focus on the effect of trading activity rather than a customer relationship. Again, this is a dramatic departure from any previous SEC interpretation of the term ‘dealer.’
The legal chief pointed out that the SEC failed to address dozens of issues raised by industry stakeholders during the comment period. For example, she noted:
“The SEC is failing to clarify an important threshold issue, despite commenters asking for clarification: how to determine which crypto asset transactions qualify as securities transactions. This makes it even more difficult for the industry to determine whether compliance is necessary.”
The Blockchain Association has an extensive membership base that includes notable crypto companies such as crypto exchanges Coinbase and Kraken, as well as stablecoin issuers Circle and Ripple.
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