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SEC Battling Charges Alleged Illegality in Expanding Dealer Rule

The Crypto Freedom Alliance of Texas and the Blockchain Association filed a complaint against the Securities and Exchange Commission in a Texas district court. The regulator was accused of contravening the Administrative Procedures Act, a regulation that controls how federal agencies create and issue guidelines.

The case is one of the few lodged against the Securities and Exchange Commission over the past year.

Dealer Rule Contested in Court

The United States Securities and Exchange Commission (SEC) was sued by the Crypto Freedom Alliance of Texas and the Blockchain Association on April 22 over a recently implemented dealer guideline. The two groups claim this rule would have ‘catastrophic impacts’ on the industry. 

In April 2022, the groups filed a case against the Securities and Exchange Commission in a Texas district court. The regulator was accused of violating the Administrative Procedures Act, a regulation that controls how federal agencies create and issue guidelines.

Several members, including Digital Currency Group, Coinbase, Kraken, and Uniswap, support the Blockchain Association. The two groups are requesting a court order to ‘abolish’ the new guideline.

In a statement, Kristin Smith, Blockchain Association chief executive officer, noted that before the SEC does more harm, they are seeking declaratory judgment as well as injunctive relief against the regulator to reverse their rule expansion and prevent its utilization against the industry.

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Security and Exchange Commission’s New Guidelines 

In February, the Securities and Exchange Commission voted to implement guidelines that require market participants with considerable liquidity-offering roles to adhere to federal securities guidelines. 

According to the 247-page rule, persons affected are those transacting in crypto assets that meet the description of securities/government securities. However, assets worth less than $50M are exempted. The regulation also covered decentralized finance (DeFi), and crypto industry groups repelled it. 

According to the Crypto Freedom Alliance of Texas and the Blockchain Association, adopting the guideline would mean contravening APA by ‘surpassing legal authority’ in defining leaders. Besides, it would mean disregarding stakeholders’ concerns and queries concerning applying the rule to decentralized finance and digital assets. 

In the complaint, the groups revealed that the SEC bizarrely failed to exclude the digital assets sector or to logically explain when and how the guideline would apply to the novel markets.

The rule’s compliance date is a year after it becomes effective on April 29. In a statement, an SEC representative said it undertakes rule-making based on its authorities and guidelines controlling the administrative process and will strongly protect the ultimate dealer guidelines in court.

Additional Cases Against US SEC

The lawsuit is one of the few lodged against the Securities and Exchange Commission over the past year. In February, the Crypto Freedom Alliance of Texas sued the regulator and LEJILEX, a digital asset firm, in a Texas court. 

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The SEC was accused of ‘illegally targeting’ the crypto sector. In March, Beba, a Texas apparel firm, and the DeFi Education Fund accused the Securities and Exchange Commission of violating the APA. 

The court was requested to declare the $BEBA token airdrop non-security. In 2023, Coinbase, a crypto exchange, also sued the regulator. In this case, it requested the agency to respond to its rulemaking petition. 


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Stephen Causby

Stephen Causby is an experienced crypto journalist who writes for Tokenhell. He is passionate for coverage in crypto news, blockchain, DeFi, and NFT.

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