Landmark Lawsuit Challenges SEC Authority by State AGs and Crypto Advocates

The DeFi Education Fund has mounted a serious legal challenge against the U.S. Securities and Exchange Commission (SEC) in an effort to clip the agency's wings in regulating cryptocurrency markets. The lawsuit, backed by a coalition of state attorneys general and filed in the Federal Court of Kentucky's Eastern District, seeks to rein in the SEC's enforcement actions against crypto exchanges.

The complaint from the plaintiffs said the SEC's actions represent an "unlawful executive action" that also runs afoul of the Administrative Procedures Act. Wrapped within their core argument is the distinction between a digital asset and an investment contract, with the coalition arguing cryptocurrencies are outside the scope of the SEC's traditional purview over securities.

Leading the charge is Kentucky Attorney General Russell Coleman, who frames the lawsuit as one defending citizens' financial freedoms. Coleman said that Kentuckians of all ages and backgrounds are eager to access crypto to assert their financial freedom and guard against historic inflation, framing the current regulatory approach as an overreach of the Biden-Harris administration.

The timing could not be more apt since the SEC Chair, Gary Gensler, will exit his position when Donald Trump takes office, and the former president is likely to name a more crypto-friendly nominee. Earlier this Thursday, Gensler corroborated the agency's stance when he cited "significant investor harm" in the crypto space and questioned how many use cases there are that are sustainable for most digital assets.