US amicus brief criticizes SEC’s power to regulate cryptocurrencies
An amicus brief filed by Iowa Attorney General Brenna Bird claims that the United States Securities and Exchange Commission (SEC) has exceeded its authority in regulating the cryptocurrency industry.
The brief, which is backed by Arkansas, Indiana, Kansas, Montana, Nebraska and Oklahoma, claims the SEC’s “power grab” is stifling innovation in the industry. It warns that the regulator’s approach could preempt state laws that are essential to implementing adequate protections. Attorney General Byrd said in a release:
“The Biden SEC is trying to stop states like Iowa from bringing robbers to justice and protecting families from the dangers of cryptocurrency scams.”
The coalition raised constitutional concerns, invoking the principal issue doctrine and federalism. They argued that regulating a multi-trillion dollar industry like cryptocurrency requires explicit authorization from Congress, which they say the SEC lacks.
“The SEC’s attempt to regulate cryptocurrency without proper authorization from Congress is a direct threat to state authorities and consumer safety,” the filing added.
According to the coalition, the SEC’s current approach of regulating through enforcement actions rather than developing an appropriate legislative framework violates the Administrative Procedure Act (APA).
The brief also criticized the SEC’s history of enforcement actions against cryptocurrency entities, citing SEC v. SafeMoon LLC.
In this case, the SEC classified SafeMoon’s tokens as securities based on their price volatility. The coalition warned that this standard could allow the SEC to regulate any commodity that changes its value, not just cryptocurrencies.
“The Biden SEC is attempting to abuse its authority by making itself responsible for regulating cryptocurrencies and circumventing state consumer protection laws,” the brief states.
Additionally, the SEC has come under criticism for classifying several cryptocurrencies as securities.
The filing claims that most cryptocurrencies do not meet the criteria for an investment contract as defined by the Supreme Court’s Howey Test, which requires an investment in a common enterprise whose profits derive solely from the efforts of others.
“Such a power grab would also harm free markets and allow the SEC to regulate the cryptocurrency industry without accountability,” Bird added.
At the time of publication, the SEC had not responded to the filing.
In February 2024, Attorney General Byrd joined other states in claiming that the SEC exceeded its authority in its case against Kraken. The joint statement also urged the court to dismiss the SEC's securities claims.
“Courts should refuse to classify crypto assets as securities without investment contracts. The SEC’s exercise of this undelegated authority puts state consumers at risk by preemptively enacting state regulations that are better suited to the specific risks of non-security products.”