Blockchain Association and Crypto Activist Group Sue SEC Over ‘Distributor Rule’

The Blockchain Association (BA) and the Crypto Freedom Alliance of Texas (CFAT) have filed a new lawsuit against the United States Securities and Exchange Commission (SEC) in the Northern District of Texas.

On April 23, BA announced the lawsuit as part of the SEC's move to challenge the latest expansion of the “distributor rule,” which industry groups say stifles innovation in the U.S. digital asset market.

BA and CFAT argue that the SEC exceeded its authority by applying a broad interpretation of the term “dealer” in the Securities Exchange Act of 1934.

In February, the SEC approved new regulations that redefine “dealer” and “dealer of government securities” and therefore require more crypto market participants to register, join a self-regulatory organization and comply with federal securities laws.

According to the lawsuit, this expansion creates an unclear and burdensome regulatory environment for businesses involved in digital asset transactions.

The suit alleges that the SEC failed to adequately address public questions raised during a limited comment period and neglected to assess the potential adverse effects of the rule.

Christine Smith, CEO of the Blockchain Association, said this was the latest example of the SEC's “clear attempt to regulate illegally outside of its jurisdiction.”

“The distributor rule will advance the SEC's anti-digital asset crusade and will illegally redefine the boundaries of legislative authority granted by Congress to drive American companies offshore and threaten to strike fear into American inventors.”

Related: The SEC's Hester Peirce wants more decentralization in the financial system

The suit seeks a court order to overturn the expansion of the vendor regulation in violation of the Administrative Procedure Act (APA). The APA ensures fair and transparent rulemaking by requiring agencies to consider public input and provide clear guidelines.

They are seeking “declaratory judgment and injunctive relief” against the regulators to reverse the expansion of the regulation and ultimately ban its use against the industry, Smith said, adding “before more damage is done by this crazy regulator.”

BA and CFAT represent a significant part of the cryptocurrency industry, including major investors, companies and projects. Overall, their work aims to foster environmental innovation and responsible development in the digital asset space for a national policy framework in the US.

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