LEJILEX and CFAT Challenge SEC’s Authority on Digital Assets
LEJILEX and the Crypto Freedom Alliance of Texas have filed a lawsuit against the US Securities and Exchange Commission (SEC), arguing that the agency does not have clear authority to regulate digital assets.
While many SEC commissioners have long acknowledged that Congress has not granted the agency extensive authority to regulate digital assets – and despite Congress having considered dozens of often bipartisan bills relating to digital asset regulation in recent years but not adopting any – the SEC’s recent enforcement actions have taken the new position that nearly all digital asset transactions involve “investment contracts” under federal securities laws.
A New Legal Battle for the SEC
LEJILEX, a digital asset company, and the Crypto Freedom Alliance of Texas (CFAT) have filed a lawsuit against the Securities and Exchange Commission (SEC) in a Texas court.
The plaintiffs argue that the SEC has not been granted the necessary authority to regulate digital assets, citing the lack of clear Congressional legislation authorizing the SEC to exercise such regulation and criticizing the SEC’s recent enforcement actions as adopting a new and debatable position.
Arguments and Implications of the Lawsuit
The plaintiffs argue that the SEC’s enforcement actions wrongly categorize digital assets as “investment contracts” without considering ongoing commitments from the seller or developer for the benefit of the asset buyer.
LEJILEX expresses concern about being subject to future SEC lawsuits, while CFAT argues that the SEC’s current dominance over the industry hinders responsible crypto policy development in Texas. The lawsuit highlights the SEC’s refusal to propose public regulations clarifying its jurisdiction over digital assets.
Reactions and Legal Perspectives
Paul Grewal of Coinbase urges the SEC to clarify the rules for the crypto community. Todd Phillips, assistant law professor, anticipates that the Fifth Circuit Court will be more receptive to the plaintiffs’ arguments, especially regarding the major questions doctrine, which states that Congress must explicitly grant authority on important matters rather than implying it in the law. This lawsuit could lead to a circuit split on the SEC’s regulatory capacity over cryptocurrencies and the application of the major questions doctrine.
This lawsuit against the SEC raises fundamental questions about regulatory authority in the digital asset space, testing the limits of enforcement-based regulation and the need for a proactive and clear regulatory framework for the crypto industry, as pointed out by SEC Commissioner Hester Peirce.
The resolution of this case could have significant implications for how cryptocurrencies are regulated and perceived in the United States.
