Eighteen states have sued the SEC, Chair Gary Gensler, and all SEC commissioners, alleging that overreach in crypto regulation infringes on state rights and hampers industry growth

18 States Sue SEC, Gensler, and All Commissioners Over Alleged Overreach in Cryptocurrency Regulation

Eighteen U.S. states have sued the Securities and Exchange Commission (SEC), its Chair Gary Gensler, and the four other commissioners, alleging that the agency has exceeded its legal authority in its regulation of digital assets.

The lawsuit, submitted Thursday in a federal court in Kentucky, includes attorneys general from Kentucky, Nebraska, Tennessee, West Virginia, Iowa, Texas, Mississippi, Montana, Arkansas, Ohio, Kansas, Missouri, Indiana, Utah, Louisiana, South Carolina, Oklahoma, and Florida. Crypto advocacy group Defi Education Fund also joins the lawsuit as a plaintiff. The SEC, Gensler, and Commissioners Caroline Crenshaw, Jaime Lizarraga, Hester Peirce, and Mark Uyeda are named as defendants.

Central to the complaint is the claim that the SEC’s enforcement actions against cryptocurrency companies inhibit growth in a rapidly expanding economic sector and infringe upon states’ rights to oversee their own economies. The states argue that Gensler’s interpretation of most cryptocurrencies, aside from bitcoin and ether, as securities represents an overreach, stifling innovation and disregarding state-level consumer protections and economic regulation.

Gensler has asserted that the majority of digital assets fall within the SEC’s regulatory scope. However, industry proponents, several lawmakers, and many states argue that certain cryptocurrencies should be classified as commodities, placing them under the oversight of the Commodity Futures Trading Commission (CFTC) rather than the SEC. This regulatory ambiguity, plaintiffs argue, has led to a “regulatory void” that has hindered the industry, as the SEC imposes penalties without an established framework, allegedly curbing industry expansion.

Kentucky Attorney General Russell Coleman criticized what he called “the Biden-Harris Administration’s unlawful crypto crackdown,” noting that the lawsuit seeks to curb what he sees as federal bureaucratic overreach. Coleman contends that SEC regulations fail to protect consumers and instead create obstacles for digital platforms, impacting millions of Americans involved in cryptocurrency.

The suit further argues that the SEC’s actions bypass essential federalist principles by marginalizing state regulatory structures, which plaintiffs contend are better equipped to handle the complexities of digital assets. According to the complaint, the SEC’s expansive jurisdictional claims lack congressional approval and undermine state rights and local laws designed to foster growth and consumer protection in the digital asset market.
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