The Blockchain Association and the Crypto Freedom Alliance of Texas (CFAT) have initiated legal proceedings against the United States Securities and Exchange Commission (SEC), filing a lawsuit in the Northern District of Texas. Their legal action aims to contest the SEC’s recent broadening of the “Dealer Rule,” which they argue is stifling innovation within the U.S. digital asset market.

In February, the SEC introduced new regulations that redefine the terms “dealer” and “government securities dealer,” effectively subjecting more participants in the crypto market to registration requirements, self-regulatory organization membership, and compliance with federal securities laws. This expansion, as asserted by the plaintiffs, introduces ambiguity and onerous regulatory burdens for businesses engaged in digital asset trading.

The lawsuit alleges that the SEC failed to adequately address public concerns voiced during the limited comment period and neglected to assess the potential adverse effects of the rule change. Kristin Smith, CEO of the Blockchain Association, condemned the SEC’s move, characterizing it as part of the agency’s “anti-digital asset crusade.” Smith contends that the rule’s overreach exceeds the SEC’s statutory authority conferred by Congress, potentially driving U.S. firms offshore and deterring American innovators.

The legal action seeks a court order to annul the expansion of the Dealer Rule on grounds of Administrative Procedure Act (APA) violations. The APA mandates transparent and equitable rulemaking by obliging agencies to consider public feedback and provide clear procedural guidelines. Smith emphasized the plaintiffs’ pursuit of “declaratory judgment and injunctive relief” against the regulators to reverse the rule expansion, aiming to prevent further harm caused by what they perceive as regulatory overreach.

The Blockchain Association and the Crypto Freedom Alliance of Texas represent a substantial segment of the cryptocurrency industry, comprising prominent investors, companies, and projects. Their joint advocacy endeavors seek to establish a national policy framework in the U.S. conducive to local innovation and responsible growth within the digital asset realm.

In recent times, the SEC has intensified its regulatory enforcement actions against crypto companies, with SEC Chair Gary Gensler consistently advocating for the classification of most cryptocurrencies as securities. Notably, the agency initiated civil litigation against Sam Bankman-Fried, co-founder of FTX, along with legal actions against other significant crypto entities, including Binance, its CEO Changpeng Zhao, and Coinbase.

Amidst mounting pressure from industry stakeholders and advocacy groups, the SEC’s approach to regulation remains a subject of contention. Reports suggest that the agency has issued subpoenas as part of its deliberations to potentially categorize Ethereum (ETH) as a security within its regulatory domain. Gensler has emphasized the SEC’s commitment to preserving its disclosure framework, amidst ongoing efforts by certain entities to challenge its regulatory authority.