U.S. SEC Loses Crypto Lawsuit Over ‘Dealer’ Definition That Pushed Into Crypto

As a seasoned researcher with a keen interest in the ever-evolving landscape of financial regulations, particularly those involving digital assets, I find the recent ruling by the U.S. District Court for the Northern District of Texas a fascinating development. The court’s decision to overturn the SEC’s “dealer” rule expansion is significant, not just for the crypto industry, but also for the broader financial sector.

A Texas federal court has dismissed a new rule by the U.S. Securities and Exchange Commission (SEC), which aimed to broaden the definition of a securities dealer to encompass more companies, even some in the cryptocurrency industry. This decision represents a substantial legal setback for SEC Chair Gary Gensler’s legacy in the crypto sphere, especially as he announced his resignation effective January.

In response to lawsuits filed by the Blockchain Association and Crypto Freedom Alliance of Texas against the Securities and Exchange Commission (SEC), a judge in the U.S. District Court for the Northern District of Texas made an early decision on Thursday, criticizing the SEC for exceeding its legal authority. The court ordered that the rule in question be dismissed.

According to Judge Reed O’Connor’s decision, the court finds that the Securities and Exchange Commission (SEC) overstepped its legal boundaries by defining ‘dealer’ so broadly without considering the text, background, and structure of the Exchange Act.

The judge who presided over a case involving Consensys and the SEC earlier this year has now issued a ruling that none of the final decision made in February should remain in effect.

A representative from the SEC shared with CoinDesk that they are examining the decision carefully and will take the necessary actions accordingly.

During Chair Gensler’s term, one of the rules the agency established aimed to clarify that the SEC has jurisdiction over cryptocurrency businesses. This rule expanded the definition of a dealer to encompass crypto operations. However, the industry contends that this definition is too broad and ambiguous, potentially imposing unreasonable requirements on decentralized finance (DeFi) and capturing crypto traders who don’t provide any dealer services.

The Blockchain Association, along with a Texas-based group, swiftly filed lawsuits, and the prompt response from the court represents a substantial legal triumph over an agency whose chairperson has recently boasted about their legal successes against cryptocurrency in public speeches.

In a statement released on Thursday regarding his departure, Gensler highlighted the agency’s disagreements with the crypto sector. Specifically, he pointed out that various courts have consistently supported the Commission’s actions to safeguard investors by enforcing laws, even when these securities are presented in unconventional forms.

On Thursdays decision, the CEO of the Blockchain Association, Kristin Smith, declared it a triumph for the entire sector.

As an analyst, I would express it this way: “In my view, the SEC’s dealer rule was an aggressive move to further their anti-cryptocurrency campaign. This rule, in my opinion, exceeded the statutory authority that Congress had granted them. Today’s ruling has effectively checked the SEC’s overreach and safeguarded the digital asset industry from this unlawful rule.