Lawsuit Challenges SEC’s Dealer Rule for Violating Administrative Procedure Act
The Blockchain Association (BA) and the Crypto Freedom Alliance of Texas (CFAT) have taken a bold step by filing a lawsuit against the U.S. Securities and Exchange Commission (SEC) in the Northern District of Texas. The lawsuit challenges the SEC’s Dealer Rule, alleging that it violates the Administrative Procedure Act (APA) by not adhering to a transparent and fair rulemaking process.
The core of the legal challenge lies in the SEC’s recent redefinition of what constitutes a “dealer.” This new definition extends to any market participant who provides liquidity or acts as a market maker, affecting entities managing at least $50 million in assets. This change notably impacts automated market makers and liquidity providers within decentralized finance (DeFi) platforms, aligning them with traditional securities dealers.
The plaintiffs argue that the rule’s implementation did not undergo a transparent, fair rulemaking process, leading to unclear regulations that hinder the operation of digital asset industry participants. The revamped dealer definition has faced opposition from within the crypto community and even within the SEC itself.
Commissioners Hester Pierce and Mark Uyeda criticized the new rule, highlighting its potential overreach and the blurring of lines between dealers and traders. The SEC reportedly adopted this rule following a 3-2 vote, reflecting internal dissent.
The lawsuit emphasizes that the SEC failed to address significant issues raised during the rule’s comment period in 2022. BA and CFAT argue that the SEC’s expansive interpretation of the term “dealer” contradicts decades of established meaning and could severely damage the network of individuals and businesses involved in digital asset trading.
This legal challenge represents a significant pushback against what the plaintiffs see as the SEC’s misguided regulatory actions against the U.S. digital asset market. The outcome of this lawsuit could have far-reaching implications for the digital asset industry and how regulatory bodies approach the evolving landscape of blockchain technology.
