On Thursday afternoon, 18 U.S. states initiated a lawsuit against the Securities and Exchange Commission (SEC) and its five commissioners, accusing the agency of unconstitutional overreach and discriminatory actions targeting the $3 trillion cryptocurrency industry.
The lawsuit, spearheaded by Kentucky Attorney General Russell Coleman, highlights the SEC’s approach under its chairman, Gary Gensler, as a significant point of contention.
Filed in a Kentucky district court, the legal challenge was brought forward in collaboration with 17 other Republican attorneys general from states including Nebraska, Tennessee, Texas, Florida, and West Virginia. The complaint also supports the DeFi Education Fund, a crypto advocacy group dedicated to promoting fair and informed policy in the decentralized finance sector.
Central to the lawsuit is the allegation that the SEC’s sweeping enforcement actions against the cryptocurrency industry violate constitutional principles of federalism, which restrict federal agencies from overstepping their legally defined boundaries. The AGs argue that Gensler’s interpretation of securities law — which deems most cryptocurrencies, aside from Bitcoin and Ethereum, as securities — has triggered aggressive enforcement campaigns without clear legislative backing.
Under Gensler’s leadership, the SEC has filed numerous lawsuits against prominent crypto firms, including Coinbase, Kraken, Ripple, and Consensys. These actions accuse the companies of selling unregistered securities on their platforms, effectively subjecting the broader industry to regulatory scrutiny without clear guidance.
This has left industry participants operating in what the attorney general described as a “regulatory limbo,” with no established framework or designated oversight body to navigate the evolving digital asset landscape.
The SEC’s stance has drawn sharp criticism from the crypto industry and its advocates and lawmakers who contend that the agency is overreaching its authority. The lawsuit seeks to challenge this perceived overreach, emphasizing the need for a balanced approach that fosters innovation while respecting constitutional limits. As of now, the SEC has not issued a public response to the allegations.
This case underscores the mounting tension between state governments, federal regulators, and the cryptocurrency sector.
