18 States Launch Constitutional Challenge Against SEC’s Crypto Oversight

In a significant challenge to federal crypto regulation, eighteen Republican state attorneys general filed a lawsuit Thursday against the Securities and Exchange Commission (SEC), claiming the agency has exceeded its constitutional authority in regulating digital assets.

The lawsuit, filed in Kentucky federal court, alleges the SEC under Chairman Gary Gensler’s leadership has engaged in “unconstitutional overreach” by attempting to assert regulatory control over the $3 trillion cryptocurrency industry without proper Congressional authorization.

Kentucky Attorney General Russell Coleman, who leads the coalition, argues the SEC’s actions have undermined state sovereignty and harmed innovation in the digital asset space. “The Biden-Harris Administration’s unlawful crypto crackdown has targeted the tens of millions of ordinary people who are taking part in this vibrant digital market,” Coleman stated.

The complaint, joined by states including Florida, Texas, and Tennessee, contends that the SEC has circumvented proper regulatory procedures by relying on enforcement actions rather than establishing clear rules for the industry. The state officials are seeking both declaratory and injunctive relief to limit the SEC’s ability to pursue enforcement actions against crypto companies.

The timing of the lawsuit is particularly noteworthy, coming shortly after Donald Trump’s election victory. Trump, who has pledged to make the U.S. the “crypto capital of the planet,” has indicated he plans to replace Gensler with a more crypto-friendly SEC chair when he takes office in January 2025.

Meanwhile, Gensler defended his approach at a legal conference Thursday, stating that “court after court has agreed with our actions to protect investors.” However, his recent comments praising SEC staff and reflecting on his tenure have fueled speculation about a possible early departure.

The lawsuit represents the latest development in an ongoing debate over cryptocurrency regulation in the United States, with states increasingly asserting their right to establish their own regulatory frameworks for digital assets. The outcome could significantly impact the future of crypto regulation and the balance of power between federal and state authorities in overseeing the rapidly evolving industry.