Blockchain Advocates Challenge SEC in Lawsuit Over ‘Dealer’ Definition

A new rule by the U.S. Securities and Exchange Commission (SEC) that expands the definition of a “dealer” in digital assets is being contested in a lawsuit brought by the Texas-based Blockchain Association and Crypto Freedom Alliance. The lawsuit, filed in the Northern District of Texas District Court, claims that the enlarged term unjustly includes anyone who trades digital assets.

The complaint claims that the SEC omitted to perform the required economic analysis and did not give proper consideration to public comments received during the rule’s comment period. The plaintiffs demand an injunction to prevent the rule’s enforcement and a determination that it violates the Administrative Procedures Act.

The lawsuit contends that the SEC’s focus on post-trading effects risks ensnaring a broad spectrum of digital asset market participants, including those merely involved in liquidity pools. It emphasizes the distinction between a dealer and a trader, noting the exclusion of individuals buying or selling securities for their own accounts.

SEC Defends Rule Amid Criticism

The SEC, defending its decision, argues that the expanded definition of a “dealer” employs a functional analysis based on securities trading activities, rather than the type of security traded. Despite considering exclusions for crypto activities, the SEC concluded that such measures might disadvantage traditional finance entities.

A spokesperson for the SEC reaffirmed the agency’s commitment to defending the rule in court, asserting its adherence to administrative processes and legal mandates.

CEO of the Blockchain Association Kristin Smith criticized the SEC’s regulation as excessive and charged that it attempted to regulate outside of its purview. She called attention to worries about how the rule might affect innovation and pushed for more definition in the limitations of regulations.

The complaint criticizes the SEC’s ambiguity about whether or not to classify transactions involving digital assets as securities, as well as more general concerns in the digital assets sector. The lawsuit contends that this ambiguity worsens regulatory uncertainty and prevents the expansion of the sector.

The lawsuit’s development highlights the continuous conflict between innovation and regulatory control in the quickly changing field of digital assets.