Crypto Lobbyists Challenge SEC’s ‘Dealer’ Classification!

Key Points:

• Lawsuit challenges SEC’s expanded definition of “dealer” in crypto space.
• Allegations include lack of engagement with public feedback and failure to conduct economic analysis.
• Lawsuit seeks to declare rule “arbitrary” and block its enforcement, amid concerns over regulatory uncertainty.

A lawsuit filed by the Blockchain Association and Crypto Freedom Alliance of Texas challenges a recent SEC rule that broadens the definition of a “dealer” to encompass digital asset activities.

Filed in the Northern District of Texas, the suit alleges that the SEC’s expanded definition would unfairly include individuals engaged in digital asset trading. It contends that the SEC failed to adequately address feedback received during the rule’s public comment period and neglected to conduct the required economic analysis. Seeking relief under the Administrative Procedures Act, the lawsuit aims to declare the rule “arbitrary, capricious, or otherwise contrary to law” and halt its enforcement.

SEC’s Expanded Rule Faces Scrutiny in Court

The suit argues that the SEC’s focus on the post hoc effects of trading could potentially ensnare various digital asset market participants, including those who merely participate in liquidity pools. Highlighting the distinction between a dealer and a trader, it emphasizes that the definition specifically excludes individuals buying or selling securities for their own accounts.

The SEC adopted the expanded definition of a “dealer” in February following a 3-2 vote in favor, framing it as a functional analysis based on securities trading activities rather than the type of security traded. While considering excluding crypto or certain aspects of the crypto industry, the SEC determined that doing so might disadvantage crypto dealers compared to traditional finance counterparts.

Blockchain Association CEO Kristin Smith condemned the rule, accusing the SEC of overstepping its authority and exacerbating regulatory uncertainty in the digital asset space. The lawsuit also addresses the ambiguity surrounding the classification of digital assets as securities, criticizing the SEC’s ad hoc approach and its failure to provide clarity on which digital assets might fall under the dealer rule.