Seven US states have formed a coalition to challenge the authority of the Securities and Exchange Commission (SEC) in regulating cryptocurrencies.
The coalition, led by Iowa Attorney General Brenna Bird, includes the states of Arkansas, Indiana, Kansas, Montana, Nebraska and Oklahoma. All together they have presented a brief amicus curiae in which they argue that the SEC is exceeding its authority, to the point of stifling innovation in the cryptocurrency industry and blockchain technology.
States oppose SEC's authority to regulate cryptocurrencies
The written amicus curiae, which was filed on July 10, the states accuse the SEC of exceeding its power in an attempt to regulate a new and emerging asset class like cryptocurrencies, which has ended up harming the market and its participants, in general.
According to the states, which strongly oppose the SEC's authority in the crypto industry, the federal agency has attempted to qualify most cryptocurrencies as securities under the Howey test. However, they argue that most of the cryptoassets on the market are not securities and, therefore, are not subject to current securities laws.
Representatives of the aforementioned states accuse the SEC of abusing its power and harming the market, in addition to preventing state authorities from protecting their citizens from cryptocurrency-related scams.
On the other hand, the coalition argued that the SEC does not have the approval of the United States Congress to regulate the cryptocurrency industry, so its actions lack legitimacy.
“Biden's SEC is trying to stop states like Iowa from doing their job of enforcing the law and protecting families from the dangers of cryptocurrency scams. “This abuse of power will also harm the free market and allow the SEC to take regulatory reins over the cryptocurrency industry without any accountability.”said the Attorney General.
In the brief, the states also argue that the SEC is violating the Administrative Procedure Act and the Important Issues Doctrine by attempting to regulate cryptocurrencies as investment contracts without providing an adequate explanation for this. The SEC had previously indicated that most cryptocurrencies were not investment contracts, but now maintains the opposite without adequately justifying this change in position.
Regulatory challenges in the crypto industry
The legal challenge, between important states and a federal agency over the regulation of cryptocurrencies in the United States, raises fundamental questions about the nature of these digital assets and the division of powers in the regulation of technological and financial innovations.
In addition to noting that the purchase of cryptocurrency does not necessarily involve an investment contract, the coalition of states also criticized the SEC's history of enforcement actions against cryptocurrency entities, citing cases such as SafeMoon, in which the agency classified the project token as a security based on price fluctuations in the market.
The filing of this legal document reflects the growing concern of legislators, politicians, and state authorities about the regulatory approach that the SEC has taken towards the crypto industry. This document comes two weeks after Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam expressed the agency's interest in become the main regulator of cryptocurrencies in the country.
The United States is also going through a moment of uncertainty amid the growing expansion of cryptocurrencies, due to the lack of a regulatory framework that guarantees clarity for the security and stability of companies participating in this industry.
