Blockchain Association and Crypto Freedom Alliance of Texas sue the SEC over newly adopted dealer rule

The Blockchain Association and the Crypto Freedom Alliance of Texas sued the U.S. Securities and Exchange Commission over a newly adopted dealer rule that they say would have "disastrous effects" on the industry.

Both groups filed a complaint against the regulator on Monday in a Texas district court, accusing the SEC of violating the Administrative Procedures Act — a law that governs how federal agencies develop and issue rules. The Blockchain Association is backed by members such as Coinbase, Digital Currency Group, Uniswap and Kraken, among others. 

The groups are asking for a court order to "strike down" the new rule.

"Before more harm can be done by this rabid regulator, we are seeking declaratory judgment and injunctive relief against the SEC to overturn their rule expansion and prohibit its use against our industry," said Blockchain Association CEO Kristin Smith, in a statement.

SEC's new rules

The SEC voted in February to adopt rules that require market participants who have significant liquidity-providing roles to comply with federal securities laws, looping in cryptocurrency to the mix. The 247-page rule would apply to people transacting in crypto assets that meet the definition of securities or government securities, with the exception of having assets less than $50 million. The rule also looped in DeFi, and received major pushback from crypto industry groups at the time.

The Blockchain Association and the Crypto Freedom Alliance of Texas said by adopting the rule, the SEC violated APA by "exceeding its statutory authority" in defining dealers and also ignored questions and concerns raised by stakeholders on how the rule would apply to digital assets and DeFi, the groups allege.

"In short, the Commission inexplicably refused to exempt the digital assets industry or to coherently explain how and when the rule would apply to those novel markets," the groups said in the complaint.

The compliance date for the rule is a year out after it goes effective on April 29, 2024.

"The Commission undertakes rulemaking consistent with its authorities and laws governing the administrative process and will vigorously defend the final dealer rules in court," an SEC spokesperson said in a statement to The Block.

Other lawsuits against the SEC

This lawsuit marks one of a few lodged against the regulator over the past year.

The Crypto Freedom Alliance of Texas also sued the SEC alongside digital asset company LEJILEX in February in a Texas court over the agency's "unlawful targeting" of the crypto industry. The DeFi Education Fund and a Texas Apparel Company Beba took the SEC to court last month over APA violations and asked the court to declare that their $BEBA token airdrop is not a security.

Last year, crypto exchange Coinbase also sued the SEC to get the agency to say yes or no to its rulemaking petition.