Utah joins 18-state lawsuit trying to maintain control over cryptocurrency

Claiming the U.S. Securities Exchange Commission (SEC) is violating existing state laws in its attempt to regulate cryptocurrencies, Utah Attorney General Sean Reyes has joined the state in a lawsuit in which 17 other states are trying to stop the federal action. The states are arguing that regulatory authority should be left to states.

Reyes did not run for reelection the cycle and will be replaced in January by Republican Derek Brown, who won election to the post in the November election.

Many states have passed their own regulations surrounding cryptocurrency, a form of digital, decentralized currency that works through a computer network and doesn’t rely on a bank or government. But the SEC, according to the complaint, “has not respected this allocation of authority.”

“Instead, without Congressional authorization, the SEC has sought to unilaterally wrest regulatory authority away from the states through an ongoing series of enforcement actions targeting the digital asset industry,” reads the states’ complaint, filed in federal court in Kentucky’s Eastern District.

“The SEC is drastically and illegally overstepping its limited authority by enforcing out-of-date legal theories in a desperate attempt to suppress the trillion-dollar digital asset industry,” said Reyes in a statement. “The desire to prevent misuse of crypto is understandable. But there are ways to do that constitutionally. There are approaches states like Utah have taken to balance blockchain growth and safeguards. The SEC’s attempt to regulate most digital assets into oblivion is wholly improper.

“Utah has been a beacon of innovation and home to many crypto leaders. Utahns of diverse backgrounds have found financial freedom and asset protection through digital currency. Instead of encouraging this vibrant new digital industry, the current administration is unlawfully cracking down on cryptocurrency to the detriment of our liberty and economic prosperity,” Reyes said.

Joining Utah and Kentucky in the complaint were the states of Nebraska, Tennessee, West Virginia, Iowa, Texas, Mississippi, Montana, Arkansas, Ohio, Kansas, Missouri, Indiana, Louisiana, South Carolina, Oklahoma, and Florida.

The SEC’s regulatory approach is based on the idea that all purchases and sales of digital assets are “investment contracts,” according to the complaint, which means they qualify as securities transactions. That means all digital asset platforms need to register with the SEC as securities exchanges, dealers, brokers and clearing agencies to comply with federal law, which “subjects the entire digital asset industry to a single ill-fitting regime that Congress enacted for an entirely different kind of financial instrument,” the states allege.

Claiming the policy violates the Administrative Procedures Act, the complaint asks the court to declare the policy unlawful and prevent the SEC from taking any kind of enforcement action.