Regulation
State Attorneys General Say SEC Went ‘Too Far’ in Regulating Cryptocurrencies | Orrick, Herrington & Sutcliffe LLP
On July 10, the attorneys general of Iowa, Arkansas, Indiana, Kansas, Montana, Nebraska and Oklahoma issued a amicus curiae brief The U.S. District Court for the Northern District of Texas ruled in favor of neither side, but criticized the SEC’s regulatory powers. The state attorneys general argued that the SEC had gone “too far” in its attempt to regulate crypto assets. The brief said the SEC had launched a campaign of “scorched earth litigation” instead of engaging in the usual regulatory notice-and-comment process. The attorneys general argued that the SEC had decided on its own merits, without congressional authorization, and in disregard of the Administrative Procedure Act (APA), which stated that its job would be to regulate crypto assets.
The brief presented three arguments in support of its critique. First, the attorneys general argued that the SEC had unlawfully exercised its enforcement powers in violation of the APA, and that its actions threatened to preempt state laws if the SEC entered into cryptoasset investment contracts under federal securities law. Second, the attorneys general argued that cryptoassets were not investment contracts under the Howey test and therefore could not be regulated by SEC regulations. The attorneys general also asserted that the SEC lacked clear congressional oversight and that its attempted overreach invoked the major questions doctrine and the federalism canon. Finally, the attorneys general argued that even if Congress authorized the SEC to regulate cryptoassets, Congress would have exceeded its constitutional authority by allegedly violating Article I because (i) the Securities Act provided no “intelligible principle” for determining whether something was an investment contract or not; and (ii) investing in cryptoassets did not involve foreign or interstate commerce.
The state attorneys general said they filed the brief to protect consumers from unreasonable regulations “imposed by the whims of a rogue federal agency.” They urged the district court to reject the SEC’s enforcement of crypto assets “absent an investment contract.”