The Blockchain Association, a nonprofit dedicated to promoting pro-innovation policy for digital assets, is suing the U.S. Securities and Exchange Commission (SEC) over its new definition of dealers in securities markets.
Together with the Crypto Freedom Alliance of Texas (CFAT), the Blockchain Association filed a lawsuit against the SEC in the Northern District of Texas, seeking a court order to strike down the SEC’s dealer rule.
The lawsuit alleges that the securities regulator violated the Administrative Procedure Act in unlawfully expanding the SEC’s interpretation of the statutory term “dealer,” enacted as part of the Securities Exchange Act of 1934.
In February, the SEC adopted a new framework that defines a dealer as a market participant that provides liquidity, and acts as a market maker. The Commission emphasized that these redefined dealer rules would apply to the trading activities itself, rather than the type of securities being traded, and would apply to dealers in control of at least $50 million worth of funds.
Essentially, this makes the framework applicable to those using automated market makers, bringing liquidity providers on decentralized finance (DeFi) protocols subject to the same requirements as securities dealers in traditional financial markets.
The SEC’s reworked definition of a dealer sparked outcry from many in the crypto community, including the Commission’s own Hester Pierce and Mark Uyeda, who opposed the rule in a vote that ended 3-2.
At the time, Peirce said that the rule “eviscerates” the dealer/trader distinction in the statute and the SEC’s own guidance, while Uyeda noted that the public should be concerned about the “immense scope of this claimed jurisdiction.”
The Blockchain Association labeled the new dealer definition “an unworkable rule” that would be a setback for innovation in the digital asset ecosystem.
The entity was also among those that sent a comment letter to the SEC during the 39-day comment period in 2022, highlighting that the proposed rule would violate the SEC’s statutory authority, and amongst other things, contradicted the SEC’s own prior guidance.
The Blockchain Association claims that the SEC ignored its comment letters and the concerns raised in them, even though they were legally required to respond.
“This is the latest example of the SEC’s blatant attempts to unlawfully regulate outside its authority, skirting legal obligations to address the numerous concerns received during its compressed comment period,” wrote Blockchain Association CEO Kristin Smith in an emailed statement.
“The Dealer Rule advances the SEC’s anti-digital asset crusade and unlawfully redefines the boundaries of its statutory authority granted to it by Congress, threatening to drive U.S. companies offshore and incite fear in American innovators,” Smith wrote.
