18 States Sue SEC, Alleging ‘Unconstitutional Overreach’ in Cryptocy Crackdown

The lawsuit, submitted Thursday in a federal court in Kentucky, includes attorneys general from Kentucky, Nebraska, Tennessee, West Virginia, Iowa, Texas, Mississippi, Montana, Arkansas, Ohio, Kansas, Missouri, Indiana, Utah, Louisiana, South Carolina, Oklahoma, and Florida. Crypto advocacy group Defi Education Fund also joins the lawsuit as a plaintiff. The SEC, Gensler, and Commissioners Caroline Crenshaw, Jaime Lizarraga, Hester Peirce, and Mark Uyeda are named as defendants.

Central to the complaint is the claim that the SEC’s enforcement actions against cryptocy companies inhibit growth in a rapidly expanding economic sector and infringe upon states’ rights to oversee their own economies. The states argue that Gensler’s interpretation of most cryptocurrencies, aside from bitcoin and ether, as securities represents an overreach, stifling innovation and disregarding state-level consumer protections and economic regulation.

Gensler has asserted that the majority of digital assets fall within the SEC’s regulatory scope. However, industry proponents, several lawmakers, and many states argue that certain cryptocurrencies should be classified as commodities, placing them under the oversight of the Commodity Futures Trading Commission (CFTC) rather than the SEC. This regulatory ambiguity, plaintiffs argue, has led to a “regulatory void” that has hindered the industry, as the SEC imposes penalties without an established framework, allegedly curbing industry expansion.