Lawsuit Challenges SEC’s Expanded Definition of “Dealer” Targeting Crypto Traders

A legal battle is brewing as the Blockchain Association and Crypto Freedom Alliance of Texas file a lawsuit against the U.S. Securities and Exchange Commission (SEC) over a newly adopted rule broadening the definition of a “dealer,” alleging that it could unfairly encompass crypto traders. The lawsuit, filed in the District Court for the Northern District of Texas, contends that the SEC’s expansion of the dealer definition overlooks public feedback and lacks necessary economic analysis.

The controversial rule, adopted by the SEC in February after a 3-2 vote, aims to redefine a “dealer” based on the trading activities of individuals, irrespective of the type of security involved. However, critics argue that this definition could potentially encompass a wide range of participants in digital asset markets, including those merely engaging in liquidity pools.

According to the lawsuit, the SEC’s rule fails to differentiate between a dealer and a trader, raising concerns about the regulatory implications for individuals involved in digital asset trading. The plaintiffs assert that the SEC’s decision-making process lacked transparency and ignored crucial input from stakeholders during the public comment period.

The SEC defended its stance, asserting that excluding crypto activities from the dealer rule could create an unfair advantage for traditional finance counterparts. An SEC spokesperson reiterated the commission’s commitment to defending the rule in court, emphasizing its adherence to administrative processes and legal obligations.

Blockchain Association CEO Kristin Smith condemned the SEC’s actions, characterizing the rule as part of the commission’s broader crackdown on digital assets. Smith expressed concerns that the rule could drive U.S. companies offshore and stifle innovation within the American digital asset ecosystem.

The lawsuit also addresses the broader issue of regulatory clarity surrounding digital assets, criticizing the SEC’s lack of definitive guidance on which digital asset transactions qualify as securities. This ambiguity, according to the plaintiffs, exacerbates uncertainty within the industry and hampers compliance efforts.

As the legal battle unfolds, the outcome could have significant implications for the regulation of digital assets in the United States, shaping the landscape for crypto traders and market participants. With tensions between regulators and industry stakeholders on the rise, the lawsuit underscores the complexities and challenges inherent in regulating the rapidly evolving world of cryptocurrencies.

Digital Assets Desk