A Texas cryptocurrency company and an industry group sued the U.S. Securities and Exchange Commission on Wednesday, saying the regulator has overstepped its authority and asking a judge to rule that digital assets traded on exchanges are not securities.
Fort Worth-based crypto company Lejilex and lobbying group Crypto Freedom Alliance of Texas (CFAT) claim the SEC has asserted jurisdiction over the industry without a “clear statutory mandate.”
Lejilex says it seeks to run a cryptocurrency platform called Legit.Exchange. The company formed last year said it plans to list digital assets including those the SEC has deemed securities in lawsuits against Coinbase, the largest cryptocurrency exchange in the U.S., and Binance, the world’s largest crypto exchange.
Lejilex wants the court to rule that listing pre-existing tokens will not violate securities laws.
“We wish we were launching our business instead of filing a lawsuit, but here we are,” Lejilex co-founder Mike Wawszczak said in a statement.
A spokesperson for the SEC did not immediately reply to a request for comment.
Both Coinbase and Binance have denied the SEC’s allegations.
CFAT asked the court to block the SEC from suing its members, and said the agency’s assertion of jurisdiction over digital assets has made it harder to convince Texas lawmakers to embrace “sensible policies.”
The group launched last year and counts Coinbase and venture capital firm Andreessen Horowitz’s a16z crypto fund as members.
CFAT and Lejilex argue the SEC is wrong to classify digital assets as “investment contracts” because they create no ongoing commitment between creator and purchaser.
They also asked the court to apply the “major questions” doctrine, which lets judges invalidate executive agency actions of “vast economic and political significance” unless Congress clearly authorized them.
The once-rare doctrine has gained traction among regulatory opponents, as the conservative-leaning U.S. Supreme Court has applied it in a couple of recent cases.
Crypto companies fighting SEC enforcement actions, including Coinbase and Binance, have made the same arguments in the other cases, so far without success.
A judge in July rejected the argument that an ongoing commitment is required to make an asset a security in the SEC’s case against Ripple Labs. Another judge overseeing the regulator’s lawsuit against Terraform Labs found the “major questions” doctrine does not apply to the cryptocurrency industry. Both of those cases were brought in New York.
The new lawsuit filed in federal court in Fort Worth brings the industry’s fight with the regulator under the jurisdiction of the 5th U.S. Circuit Court of Appeals. More than two thirds of the judges on the appeals court were appointed by Republican presidents, making it the favored 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 with a track record of ruling in favor of conservative litigants challenging laws and regulations governing guns, LGBTQ rights and healthcare.
Paul Clement, former U.S. Solicitor General under President George W. Bush, represents the plaintiffs.
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