Regulation
State-led amicus brief criticizes SEC’s power to regulate cryptocurrencies
An amicus brief filed by Iowa Attorney General Brenna Bird argues that the U.S. Securities and Exchange Commission (SEC) is overstepping its authority in regulating the cryptocurrency industry.
The brief, supported by Arkansas, Indiana, Kansas, Montana, Nebraska and Oklahoma, statements The SEC’s “power grab” is stifling innovation in the industry. He warned that the regulator’s approach could override state laws crucial to implementing adequate protections. Attorney General Bird said in a announcement:
“Biden’s SEC is trying to prevent states like Iowa from doing their job of holding robbers accountable and protecting families from the dangers of cryptocurrency scams.”
The coalition has raised constitutional questions, invoking the Major Questions Doctrine and the principles of federalism. They argue that regulating a multi-billion dollar industry like cryptocurrency requires explicit congressional authorization, which they argue is not available to the SEC.
“The SEC’s attempt to regulate cryptocurrencies without proper Congressional authorization poses a direct threat to state authority and consumer safety,” the filing reads.
According to the Coalition, the SEC’s current approach of regulating through enforcement actions rather than developing adequate legislative frameworks violates the Administrative Procedure Act (APA).
The report also criticized the SEC’s history of enforcement actions against cryptocurrency entities, citing the SEC Case Against SafeMoon LLC.
In this case, the SEC classified SafeMoon’s token as a security based on its price fluctuations. The coalition warned that this standard could allow the SEC to regulate any commodity that changes its value, not just cryptocurrencies.
“Biden’s SEC is attempting to abuse its power and take over the responsibility of regulating cryptocurrencies, circumventing state consumer protection laws,” the report reads.
Additionally, the SEC’s classification of several cryptocurrencies as securities has also been criticized.
The complaint argues that most cryptocurrencies do not meet the criteria of an investment contract, as defined by the Supreme Court’s Howey test, which requires an investment in a joint venture whose profits are derived solely from the efforts of others.
This power grab will also harm the free market and allow the SEC to take over the regulation of the cryptocurrency industry without any accountability,” Bird added.
At the time of publication, the SEC had not yet responded to the request.
In February 2024, Attorney General Bird joined other states arguing that the SEC had exceeded its authority in its case against Kraken. The joint statement also urged the court to dismiss the SEC’s securities claims.
“The court should refuse to classify cryptocurrencies as securities in the absence of an investment contract. The SEC’s exercise of this undelegated authority puts state consumers at risk by overriding state statutes that are better suited to the specific risks of non-securities products.”