Crypto firm, industry group sue US SEC over digital asset ‘overreach’

A Texas cryptocurrency company and an industry group sued the U.S. Securities and Exchange Commission on Wednesday, saying the regulator overstepped its authority and asking a judge to rule that exchange-traded digital assets are not securities.

Fort Worth-based crypto company Lejilex and lobby group Crypto Freedom Alliance of Texas (CFAT) argue that the SEC has asserted jurisdiction over the industry without a “clear statutory mandate.”

Lejilex says it aims to operate a cryptocurrency platform called Legit.Exchange. The company, founded last year, said it plans to list digital assets, including those the SEC has deemed securities in lawsuits against Coinbase, the largest cryptocurrency exchange in the US, and Binance, the largest crypto exchange in the world.

Lejilex wants the court to rule that listing pre-existing tokens will not violate securities laws.

“We wish we could start our business instead of filing a lawsuit, but here we are,” Lejilex co-founder Mike Wawszczak said in a statement.

An SEC spokesman did not immediately respond to a request for comment.

Both Coinbase and Binance have denied the SEC’s allegations.

CFAT asked the court to block the SEC from suing its members and said the agency’s assertion of jurisdiction over digital assets has made it difficult to convince Texas lawmakers to adopt “sensible policies.”

The group launched last year and includes Coinbase and venture capital firm Andreessen Horowitz’s crypto fund a16z as members.

CFAT and Lejilex argue that the SEC is wrong to classify digital assets as “investment contracts” because they do not create an ongoing commitment between creator and buyer.

They also asked the court to apply the “fundamental issues” doctrine, which allows judges to invalidate executive agency actions of “enormous economic and political significance” unless Congress clearly authorized them.

The once-rare doctrine has gained traction among regulatory opponents as the conservative US Supreme Court has applied it in several recent cases.

Crypto companies fighting the SEC’s enforcement action, including Coinbase and Binance, have made the same arguments in other cases, so far without success.

In July, a judge rejected the argument that an ongoing commitment was required to turn an asset into collateral in the SEC’s case against Ripple Labs. Another judge overseeing the regulator’s case against Terraform Labs found that the “fundamental issues” doctrine does not apply to the cryptocurrency industry. Both cases were filed in New York.

The new lawsuit, filed in federal court in Fort Worth, puts the industry’s fight with the regulator under the jurisdiction of the 5th U.S. Circuit Court of Appeals. More than two-thirds of the appeals court’s judges are appointed by Republican presidents, making it a favored venue for SEC challenges under the Biden administration.

The case was assigned to Judge Reed O’Connor, an appointee of former Republican President George W. Bush with a track record of ruling in favor of conservative parties challenging laws and regulations governing guns, LGBTQ rights and health care.

Paul Clement, former U.S. Solicitor General under President George W. Bush, represents the plaintiffs.

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