The Securities and Exchange Commission (SEC) faces an unprecedented legal challenge as 18 US states unite to denounce its aggressive policies towards the cryptocurrency industry. This landmark legal action, led by Kentucky Attorney General Russell Coleman, marks a major escalation in the conflict between federal regulators and digital asset advocates.
18 US states sue SEC over crypto crackdown
On November 14, an alliance of 18 Republican attorneys general, led by Russell Coleman of Kentucky, filed a lawsuit against the SEC and its commissioners. The plaintiff states include Texas, Florida, Tennessee and Utah, supported by the DeFi Education Fund, a non-profit organization dedicated to Web3.
States accuse SEC of having illegally extended its jurisdiction over the crypto sector without the approval of Congress. According to the complaint, this regulatory overreach has significantly hindered innovation in one of the most dynamic sectors of the U.S. economy.
The coalition particularly denounces coercive actions taken against major players like Coinbase, Ripple and Kraken, which it considers examples of unjustified regulatory authoritarianism.
The Howey test at the heart of controversy
The complaint directly challenges the SEC's use of the Howey test, a legal framework dating to 1946, to classify cryptos as securities. The States contest the agency's extensive interpretation of this test, citing in particular the decision favorable to Ripple of July 2023.
Under the leadership of Gary Gensler since 2021, the SEC has increased repressive actions against the crypto industry. The agency notably fined Kraken $30 million and targeted other major players like Uniswap Labs and OpenSea.
The SEC chairman maintains his position, saying at a recent conference that “the vast majority of crypto assets have yet to demonstrate lasting utility” and that their failure has caused significant harm to investors.
Faced with this major legal battle and in a changing political context, the future of crypto regulation in the United States could experience significant changes. This legal action marks a decisive turning point in relations between the states and the federal financial markets regulator.
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