April 22, 2024

Texas Cryptocurrency Company and Industry Group Challenge SEC’s Authority in Lawsuit


Fort Worth-based cryptocurrency company Lejilex, along with the Crypto Freedom Alliance of Texas (CFAT), filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) on Wednesday, challenging the regulator’s authority and seeking a court ruling that digital assets traded on exchanges are not securities.

Lejilex, which aims to operate a cryptocurrency platform named Legit.Exchange, alleges that the SEC has overstepped its authority without a “clear statutory mandate” to regulate the industry. The company, formed last year, plans to list digital assets, including those previously deemed securities in lawsuits against major exchanges Coinbase and Binance.

The lawsuit seeks a court ruling that listing pre-existing tokens will not violate securities laws. Lejilex co-founder Mike Wawszczak expressed regret in having to file a lawsuit, stating, “We wish we were launching our business instead of filing a lawsuit, but here we are.”

The SEC has not yet commented on the lawsuit, and both Coinbase and Binance have denied the SEC’s allegations in separate cases.

CFAT, a lobbying group launched last year, joins Lejilex in the legal action and requests the court to prevent the SEC from suing its members. The group argues that the SEC’s assertion of jurisdiction over digital assets has hindered efforts to persuade Texas lawmakers to adopt what they term as “sensible policies.” Coinbase and Andreessen Horowitz’s a16z crypto fund are among CFAT’s members.

The crux of the argument put forth by CFAT and Lejilex is that the SEC wrongly classifies digital assets as “investment contracts,” emphasizing the absence of an ongoing commitment between creators and purchasers. They also urge the court to apply the “major questions” doctrine, allowing judges to invalidate executive agency actions of “vast economic and political significance” unless explicitly authorized by Congress.

The lawsuit, filed in federal court in Fort Worth, brings the dispute between the cryptocurrency industry and the SEC under the jurisdiction of the 5th U.S. Circuit Court of Appeals. This court, with a majority of judges appointed by Republican presidents, is seen as favorable for challenges to the SEC under the current Biden administration. The case has been assigned to Judge Reed O’Connor, known for his rulings in favor of conservative litigants challenging various laws and regulations.

Representing the plaintiffs is Paul Clement, former U.S. Solicitor General under President George W. Bush. The legal challenge adds to the ongoing efforts by cryptocurrency companies to contest SEC enforcement actions, though previous arguments in similar cases have not yet succeeded. The outcome of this latest lawsuit may have broader implications for the regulatory landscape surrounding digital assets in the United States.

Digital Assets Desk

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