On 14 November, attorneys general from 18 states filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) and its five commissioners, accusing the agency of unconstitutional overreach in its actions against the cryptocurrency industry. Led by Kentucky Attorney General Russell Coleman, the case was submitted to a Kentucky district court with backing from 17 other Republican attorneys general and the DeFi Education Fund, a crypto advocacy group.
The lawsuit challenges the SEC's enforcement efforts under SEC Chair Gary Gensler, arguing that the agency's interpretation of securities laws and enforcement actions exceed its congressionally mandated authority and violate federalism principles.
“At bottom, the SEC's regulatory overreach defies basic principles of federalism and separation of powers,” the complaint states. “The SEC’s assertion of sweeping jurisdiction without congressional authorization deprives States of their proper sovereign role and chills the development of innovative regulatory frameworks for the digital asset industry.”
The attorneys general claim that the SEC's tactics harm both the cryptocurrency industry and consumers by creating a "regulatory limbo" that stifles innovation. They argue that the SEC has disregarded Congress's intent to let states take the lead on digital asset regulation and has introduced economic risks by penalizing platforms without clear federal guidelines.
The lawsuit comes during a period of political change in Washington. With President-elect Donald Trump and a Republican majority in Congress, the $3.2 trillion cryptocurrency industry may see a shift toward more favorable regulation. In July, the Republican Party announced its support for cryptocurrency, pledging to protect the right to mine Bitcoin, enable Americans to self-custody digital assets, and limit government surveillance of transactions. Trump, reinforcing this position, has promised to make the U.S. “the crypto capital of the planet” and to remove SEC Chair Gary Gensler to promote a more supportive regulatory environment.
As speculation grows about potential leadership changes at the SEC, the lawsuit’s impact on the agency's approach remains uncertain. Its outcome could set a precedent for how federal agencies regulate emerging technologies.
A report from Social Capital Markets highlighted that SEC fines against the cryptocurrency industry surged from $150.26 million in 2023 to $4.68 billion in 2024, marking a 3018% increase. Between 2013 and 2024, the SEC imposed over $7.42 billion in fines on crypto firms and individuals, with 63% of the total fines issued in 2024 alone.
